A futures contract on gold states that buyers and sellers agree to make or take delivery of an ounce of gold for £800 per ounce.The contract expires in 3 months.The current price of gold is £700 per
Ounce.If the price of gold rises and continues to rise every day over the 3 month period, then when
The contract is settled, the buyer will_____and the seller will _____.

Question

Quizplus · Accepted Answer

If the price of gold rises continuously over the 3 month period, the contract price of £800 per ounce will become more valuable than the current market price of £700 per ounce. The buyer, who agreed to purchase at £800 per ounce, will gain as they can now sell the gold for a higher market price. The seller, who agreed to sell at £800 per ounce, will lose as they could have earned a higher market price if they had sold the gold at the current price of £700 per ounce. Therefore, the correct choice is B, gain; lose.

A Futures Contract on Gold States That Buyers and Sellers