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

When interest rates decrease, the prices of existing bonds increase because new bonds are issued at the new, lower rate. Since Tom has a long position in U.S. Treasury bond futures, he would benefit from an increase in bond prices, thus gaining money on his position.

Tom Buys a Futures Contract for U