Today,you purchased a futures contract obligating you to purchase 100 troy ounces of gold for $1,218 per ounce any time over the next month.Assume the spot price of gold falls to $1,216 tomorrow.What will be your cash flow tomorrow for this contract?
A)−$400
B)$200
C)$0
D)−$200
E)$400

Question

Quizplus · Accepted Answer

If the spot price of gold falls to $1,216 tomorrow, the contract holder can purchase 100 troy ounces of gold for $1,218, which is $2 higher than the current spot price. Therefore, the contract holder would not exercise the contract and would have no cash flow related to it. However, since the contract was purchased for a price, the initial cost of the contract would result in a cash outflow of $200. Therefore, the cash flow for this contract tomorrow would be -$200.

Today,you Purchased a Futures Contract Obligating You to Purchase 100