The seller of a pork bellies futures contract at $0.41 per pound noted that the closing price of pork bellies was $0.44 today.What will happen to this contract,which requires delivery of 40,000 of pork bellies at expiration?

Question

Quizplus · Accepted Answer

The seller of the pork bellies futures contract is obligated to sell 40,000 pounds of pork bellies at the contract price of $0.41 per pound, regardless of the current market price. Since the current market price at expiration is $0.44 per pound, the seller experiences a loss of $0.03 per pound.

To calculate the total loss, we can use the formula: 
Loss = (Contract price - Market price) x Contract quantity 
Loss = ($0.41 - $0.44) x 40,000 
Loss = -$1200

Therefore, a loss of $1,200 is posted to the account.

The Seller of a Pork Bellies Futures Contract at $0