Kayla is a speculator in the market for a rare French goat cheese known as Crott
ID: 1202518 • Letter: K
Question
Kayla is a speculator in the market for a rare French goat cheese known as Crottin de Chavignol. She entered into a futures contract with farmers from the small town of Chavignol, where the cheese is produced. The futures contract specifies that after 45 months, Kayla will purchase 3000 kilograms (kg) of Crottin de Chavignol at $220/kg. When the specified number of months has passed, the price of Crottin de Chavignol is $280/kg. What is Kayla's profit per kilogram? Please denote losses with a negative sign.
Explanation / Answer
A future contract is a exchange traded contrat, where physical settlement is not possible. Comodity futures are also exchange traded so the delivery is not possible. They are used to cover the risk of price movement in actual market. The profit or payoff position of a futures contract depends on the differences between the contracted future price and the actual market price prevailing on the maturity date.
In the given case of Kayla Price at expire is $280/kg
Profit/Kg= 280 - 220
= $60 / kg
Total profit= 60 * 3000
= $180,000
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