Suppose the standard size of a copper futures contract is 25,000 pounds each.At initiation of a futures contract,the futures price is $22.50 per pound.At expiration of the futures contract,the copper price is $19.50 per pound.Which of the following is true?
A)The short profits by $3 per pound.
B)The long profits by $3 per pound.
C)Demand for copper has risen relative to its supply.
D)The two parties split the profit.

Question

Quizplus · Accepted Answer

The short position benefits from a decrease in the price of the underlying asset, so in this case, the short would profit by $3 per pound (selling at $22.50 and buying back at $19.50). The long position would have a loss of $3 per pound. Option C is not relevant to the question, and option D is incorrect as one party profits while the other experiences a loss.

Suppose the Standard Size of a Copper Futures Contract Is