Suppose That a Futures Contract with Asset XYZ as the Underlying

question 38

Multiple Choice

Suppose that a futures contract with Asset XYZ as the underlying instrument has a futures price equal to $100 and a settlement date one month from now. Which of the below statement is FALSE for an investor who SELLS this futures contract?

• A) By selling this futures contract, the investor would be agreeing to sell Asset XYZ for $100 one month from now.
• B) If Asset XYZ's price falls below $100, the investor (who sells this futures contract) is protected because she will receive $100 upon delivery of the asset to satisfy the futures contract.
• C) If Asset XYZ's price rises above $100, the investor (who sells this futures contract) will not realize the price appreciation because she must deliver the asset for an agreed-upon amount of $100.
• D) By selling the futures contract, the investor has locked in a price of $100, and fails to realize a gain if the price declines while avoiding a loss if the price rises.

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