Today (t=0) one party goes short a futures contract and another sells a forward contract on the
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Question:
Today (t=0) one party goes short a futures contract and another sells a forward contract on the same commodity.
The prices at t = 0, 1, 2, 3 where 3 = T = maturity are
0F3 = 100 1F3 = 140 2F3 = 110 3F3 = 110
Assume that both contracts are held to maturity.
Assume the commodity delivered at T = 3 is taken from previously held inventory.
Assume that initial margin is met with previously bought T-Bills.
The cash flows to the trader in the futures market in periods 0, 1, 2 and 3 are respectively
0, +40, -30 and +90
0, 0, 0, and +100
0, -40, +30 and 110
+100, +50, -20 and +70
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