Question
The three-month futures price for the euro is $1.0640/. You expect the spot price three months from today to be $1.0280/ and your friend expects
The three-month futures price for the euro is $1.0640/. You expect the spot price three months from today to be $1.0280/ and your friend expects that spot to be $1.0960/. The euro futures contract size is 125,000.
If you and your friend are speculators would you buy the euro futures contracts or sell them? Explain your answer in words (as in how your position works to your benefit or against it). Repeat for your friend.
How much profit would you make if you trade 75 contracts and your expectations come true?
How much would your friend make for the same number of contracts if your (not your friends) expectations come true?
Do you see the zero-sum game in action? How?
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