Tom buys a futures contract for U.S.Treasury bonds and on the settlement date the interest rate on U.S.Treasury bonds is lower than Tom expected.Tom will have:
A)Lost money on his long position.
B)Gained money on his long position.
C)Lost money on his short position.
D)Gained money on his short position.

Question

Quizplus · Accepted Answer

Tom has a long position in the futures contract, which means he has agreed to buy U.S. Treasury bonds in the future at a certain price. If the interest rate on these bonds is lower than he expected, it means the market price of the bonds has gone up, and Tom will have to buy them at a higher price than if the interest rate had remained the same. Therefore, he will have lost money on his long position.

Tom Buys a Futures Contract for U