FRM Part I · FRM Exam Part I · Futures Markets
A trader buys one futures contract on 1,000 units at USD 50. The margin account earns no interest. The futures price falls to USD 48 on day 1 and rises to USD 51 on day 2. What is the cumulative profit or loss on the position after day 2, as reflected by daily settlements?
The cumulative result is a gain of USD 1,000. Daily settlement produces a USD 2,000 loss on day 1 and a USD 3,000 gain on day 2, which sums to the same as the total price change of USD 1 on 1,000 units.
- AGain of USD 1,000Correct
- BLoss of USD 2,000
- CGain of USD 3,000
- DLoss of USD 1,000
Explanation
Day 1: (48 - 50) x 1,000 = -2,000. Day 2: (51 - 48) x 1,000 = +3,000. Cumulative = +1,000, equal to (51 - 50) x 1,000.
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