You Lend $2,000 at 12% Per Year for Three Months

question 6

Multiple Choice

You lend $2,000 at 12% per year for three months and proceed to short sell Asset XYZ for $2,000 in the cash market. You are required to pay $200 to the lender of Asset XYZ (which is the proceeds the lender would have received) . You then immediately buy a futures contract at $1,850 for delivery of asset XYZ in three months (this will cover your short position) . What is the net profit or loss from your strategy of lending money, short selling, and buying the futures contract?

• A) $30
• B) $20
• C) $10
• D) $0

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Definitions:

Financial Data

Information about financial transactions, including revenues, expenses, assets, and liabilities, used to analyze the financial health of a business.

Acid-Test Ratio

A liquidity ratio that measures a company's ability to pay off its current liabilities with quick assets, excluding inventory.

Financial Data

Information related to the financial status of an individual or organization, including income, expenses, assets, and liabilities.

Acid-Test Ratio

A financial metric that measures a company's ability to meet its short-term obligations with its most liquid assets, excluding inventory.