question archive On 14 January, Tacoma Co
On 14 January, Tacoma Co
Subject:FinancePrice:2.86 Bought3
On 14 January, Tacoma Co., an Australian company anticipates that it will need Chinese yuan (CNY) in March when it orders supplies from a Chinese supplier. Tacoma, therefore, purchases a futures contract specifying CNY4 million and a March settlement date (which is 21 March for this contract). On 14 January, the futures contract is priced at A$0.2899 per CNY. On 11 February, Tacoma realises that it will not need to order supplies because it has reduced its production levels. Therefore, Tacoma has no need for CNY in March. It sells a futures contract on CNY4 million with the March settlement date to offset the contract it purchased in January. At this time, the futures contract is priced at A$0.3210 per CNY. Calculate the profit or loss in percentage (ignore the margin requirements) that Tacoma incurs due to closing its' March futures contract position.
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The answer is 0.1244 Million A$ profit
Step-by-step explanation
Given the amount of future contracts us CNY 4 Million
Price of the future contract is A$0.2899 per CNY
Futures are the the rate of A$/CNY = 0.2899
Price at which it sold the future contracts is A$0.3210 per CNY
Initial buying price CNY futures for A$0.2899 per CNY
Later we sold CNY futures for A$0.3210 per CNY
We bought for lower price and sold for higher price to square off our position
So the amount of profit will be
(0.3210 - 0.2899) * 4 Million CNY
= 0.0311 * 4 = 0.1244 Million A$ profit
