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16 December, 06:54

You speculate in crude oil futures. Last month, you purchased ten January futures contracts at a quoted price of 99.91. These contracts are based on 1,000 barrels and quoted in dollars per barrel. Assume the actual price per barrel is $60.20 in January. How much did you gain or lose by hedging your position

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Answers (2)
  1. 16 December, 08:09
    0
    Loss of $397,100

    Explanation:

    The price in future contract is $99.91 per barrel, and actual price is $60.20

    The loss per barrel = $99.91 - $60.20 = $39.71

    Total loss = 10 contracts * 1000 barrels * loss of $39.71 per barrels =

    = 10*1000*$39.71 = $397,100
  2. 16 December, 08:31
    0
    The amount of loss is $397,100 by hedging the position.

    Explanation:

    This can be calculated using the following equation:

    Profit or loss = Number of contract * 1,000 * (Actual price per barrel - Quoted future price)

    Since;

    Number of contract = 10

    Actual price per barrel = $60.20

    Quoted future price = 99.91

    By substituting the values into the equation above, we have:

    Profit or loss = 10 * 1,000 * ($60.20 - $99.91)

    = 10,000 * ( - 39.71)

    Profit or loss = - $397,100

    Since the figure is negative, the amount of loss is $397,100 by hedging the position.
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