Catchup Company buys a contract in SPI futures,taking a buy position on 1 April 2013 to 'take delivery' on 30 May 2013.A unit contract in SPI futures is priced at the All Ordinaries SPI multiplied by $25.On 1 April the All Ordinaries SPI is 2950.By 1 May the index has dropped to 2600 and Catchup decides to close out the contract.What is Catchup's gain or loss on the futures contract?
A) gain of $22
B) loss of $8750
C) loss of $350
D) gain of $8750

Question

Quizplus · Accepted Answer

To close out the contract, Catchup must take a sell position in the same contract. 
The profit/loss on futures contract = (selling price - buying price) x contract size 
Buying price on 1 April = All Ordinaries SPI x $25 = 2950 x $25 = $73,750 
Selling price on 1 May = All Ordinaries SPI x $25 = 2600 x $25 = $65,000 
Profit/loss = ($65,000 - $73,750) x 1 = -$8,750 (negative because it's a loss) 
Therefore, the correct answer is B, loss of $8750.

Catchup Company Buys a Contract in SPI Futures,taking a Buy