Question 2: Suppose that price of gold is AED4100/ounce on October 20, 2012. Rado Watch Company enters into a contract to buy 1000 ounces of gold from Julian Mines at AED4120/ounce on May 30, 2013. Suppose that on May 30, 2013 the price of the gold is AED4200/ounce.

1. From the above information, can we say that the contract/agreement is a financial asset? If yes, what will be the value of the contract on (I) October 20, 2012 (II) May 30, 2013. 2. Who will loose on October 20, 2012 and how much?

3. Who will loose on May 30, 2013 and how much? . What will be the net position if we consider both long and short position? 5. What will be the terminal pay off for long position holder? 6. What will be the terminal pay off for short position holder? 7. What will be the terminal pay off for long and short positions if price of gold on May 30, 2013 is AED4140/ounce or AED4160/ounce or AED4180/ounce or AED4100/ounce or AED4080/ounce or AED4060/ounce 8. Draw the terminal pay off graph for long and short positions.