A soybean oil contract calls for delivery of 60,000 pounds.What happens to the seller of a soybean futures contract at 16 cents per pound if the futures price closes the next day at 18 cents per pound?
A)The contract is marked to market with a $1,200 loss.
B)The contract is marked to market with a $1,200 gain.
C)Futures contracts are voided if price increases before expiration.
D)Nothing happens until the expiration of the contract.

Question

Quizplus · Accepted Answer

The seller of a soybean futures contract would experience a loss if the price increases from 16 cents to 18 cents per pound. Since each contract is for 60,000 pounds, the price increase of 2 cents per pound results in a total loss of $1,200 (60,000 pounds * $0.02/pound). Futures contracts are marked to market daily, meaning the seller's account would be debited for the loss.

A Soybean Oil Contract Calls for Delivery of 60,000 Pounds