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CMA Final · Strategic Financial Management · Forwards and Futures

A trader buys one lot of 1,000 units of a commodity futures at Rs 250 per unit. At the end of day 1 the settlement price is Rs 246, and at the end of day 2 it is Rs 252. What is the cumulative profit or loss after day 2 and the day 2 mark-to-market gain?

Cumulative gain is Rs 2,000 and the day 2 mark-to-market gain is Rs 6,000. Day 1 produced a Rs 4,000 loss, day 2 recovered Rs 6,000 from 246 to 252, leaving net Rs 2,000 versus the entry price of 250.

  1. ACumulative gain Rs 2,000; day 2 gain Rs 6,000Correct
  2. BCumulative gain Rs 2,000; day 2 gain Rs 2,000
  3. CCumulative loss Rs 2,000; day 2 gain Rs 6,000
  4. DCumulative gain Rs 6,000; day 2 gain Rs 6,000

Explanation

Day 1 loss = (246 - 250) x 1,000 = -4,000. Day 2 gain = (252 - 246) x 1,000 = 6,000. Cumulative = 6,000 - 4,000 = +2,000, which equals (252 - 250) x 1,000. Using Rs 2,000 as the day 2 gain wrongly measures from the original price.

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