On June 1,you contract to take delivery of 1 ounce of gold for $965. The agreement is good for any day up to July 1. Throughout June,the price of gold hit a low of $960 and hit a high of $990. The price settled on June 30 at $980,and on July 1^st you settle your futures agreement at that price. Your net cash flow is: A) -$20. B) -$15. C) -$5 D) $15. E) $20.

Question

Quizplus · Accepted Answer

Since you agreed to take delivery of 1 ounce of gold for $965, you have a long position in gold futures. The price of gold fluctuated throughout June, but you were able to settle your futures contract on July 1 for $980.

The net cash flow is calculated as the difference between the price you agreed to pay and the price you ultimately settled on, multiplied by the size of the contract (1 ounce in this case).

Net cash flow = (Settlement price - Agreed price) x Contract size
Net cash flow = ($980 - $965) x 1 ounce
Net cash flow = $15

Therefore, your net cash flow is a positive $15.

On June 1,you Contract to Take Delivery of 1 Ounce