A futures contract on gold states that buyers and sellers agree to make or take delivery of an ounce of gold for $400 per ounce. The contract expires in 3 months. The current price of gold is $350 per ounce. If the price of gold rises and continues to rise every day over the 3 month period, then when the contract is settled, the buyer will _____ and the seller will ____.
A) lose; gain
B) gain; lose
C) gain; break even
D) gain; gain
E) lose; lose

Question

Quizplus · Accepted Answer

Since the price of gold is expected to rise every day over the 3-month period, the buyer will benefit from purchasing the gold at the lower contracted price of $400 per ounce instead of buying it on the market for a higher price. The seller, on the other hand, will lose out on potential profits by selling the gold for only $400 per ounce instead of waiting and selling it on the market for a higher price. Therefore, the buyer will gain and the seller will lose.

A Futures Contract on Gold States That Buyers and Sellers