Posted on: 15^th Jun 2024

DSM080: Financial Markets, Assignment, UOL, Singapore: A grapefruit juice futures contract is for 15,000 pounds of frozen grapefruit juice

University	University of London (UOL)

Question 4

A grapefruit juice futures contract is for 15,000 pounds of frozen grapefruit
juice. Suppose that in September 2016 a company sells a March 2018 grapefruit juice futures contract for $2.40 per pound. In December 2016 the
futures price is $2.80; in December 2017 the futures price is $2.20; and in February 2018 the contract is closed out at $2.50. The firm’s accounts have a
December year end.

(a) What does it mean to “close out” a short position in a futures contract?

(b) What is the company’s profit or loss on the grapefruit juice futures
contract?

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