Hi,
I am struggling to understand why in part B of the question (daily impact on mark to market) the examining team has calculated the losses for 2nd and 3rd June and then a profit on the 4th.
In my opinion (but I know that I am wrong) it should be the opposite.
I think I am missing something...
Any clue?
Thanks
I believe this is how marking to market price settlement works. At the end of each day the Clearing House calculates the daily profit or loss on the futures position. 50 futures contracts were bought at 95·84 on 1 June and 30 futures contracts were sold at 95·61 on 3 June.
Date Settlement prices are as follows (given): 1 June 95·84 2 June 95·76 3 June 95·66
so daily changes in your contract positions are as below: 2 June: 8 basis points (95·76 – 95·84) x $25 x 50 contracts = $10,000 loss 3 June: 10 basis points (95·66 – 95·76) x $25 x 50 contracts + 5 basis points (95·61 – 95·66) x $25 x 30 contracts = $16,250 loss
Regards,
Michal
Hi Michal,
Thanks, I agree with you, but the point is that the company is borrowing money. Therefore on the future market is selling now and buying later. Therefore is the future price falls (daily), the company is making a daily profit, not a loss.
Maybe part B is not linked to part A of the question, and when ACCA says buying future it means exactly what you said buying now and sell tomorrow. In par A the position is different (sell now and buy later).
What do you think?
Thanks.
