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

question 63

Multiple Choice

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

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Definitions:

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditures to the correct period for accurate financial reporting.

Sold at a Discount

A transaction where goods or services are sold for a price lower than their usual or market rate.

Face Value

The nominal or stated value of a financial instrument, such as a bond or stock, as defined by the issuer.

Bond Issue

A bond issue refers to the process by which a corporation or government raises funds by issuing bonds to investors, which are debt securities promising to repay the principal along with interest.