Suppose you agree to purchase one-ounce of gold for £382 any time over the next month.The current price of gold is £380.The spot price of gold then falls to £377 the next day.If the agreement is represented by a futures contract marking to market on a daily basis as the price changes,what is your cash flow at the end of the business on the next day?

Question

Quizplus · Accepted Answer

The initial agreed-upon price was £382, which is higher than the current spot price of £380. Therefore, the futures contract currently has a value of +£2 for the seller (you) relative to the market. 
However, the spot price falls to £377 the next day, which means the value of the futures contract has also decreased. The seller (you) now have a loss of £5 relative to the market.
Since the contract marks to market on a daily basis, this means you need to pay the counterparty (buyer) the loss of £5 at the end of the business day. Therefore, your cash flow is -£5. Answer D is the closest to this value.

Suppose You Agree to Purchase One-Ounce of Gold for £382