Futures Market

Attached is a copy of data for gold futures trading: trading prices and settlement prices (Table 2.1).

a. create a column for future spot price of an ounce of gold ranging from 0 to $2,000 with a $50 increment in column A.

b. Create a column for your speculative position in spot market to buy an ounce of gold as a gold jeweler if you engage in speculation (Same numbers as in column A) in column B.

c. Calculate profit or loss from your long position at maturity as you buy a gold futures contract at $1,250 (in vertical axis) in column C in response to possible future spot price of an ounce of gold ranging from 0 to $2,000 with a $50 increment in column A.

d. Calculate your hedging position (combined position) as a jeweler with a speculative position (column B) and profit or loss from a long position in futures contract (column C) in column in column D (Column B minus column C).

e. Draw a line graph for column A (X-axis) and columns B, C, and D (Y-axis), for a long position in the futures trading based on future spot price of an ounce of gold, and outcome of hedging in column D.

f. Provide an interpretation of your graph in part e.

Table 2.1 Operation of margin account for a long position in two gold futures contracts. The initial margin is $6,000 per contract, or $12,000 in total; the maintenance margin is $4,500 per contract, or $9,000 in total. The contract is entered into on Day I at $1,250 and closed out on Day 16 at $1,226.90