Suppose in August, a Speculator Believes That Interest Rates Will

question 5

Essay

Suppose in August, a speculator believes that interest rates will decrease next month.They observe the yield for September BAB futures is the same as the current 90-day bank bill rate.How could the speculator make a profit by trading in the September BAB futures contracts?

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Definitions:

Contribution Margin Ratio

A financial measure that gauges the proportion of sales revenue that exceeds variable costs, indicating how much revenue contributes towards covering fixed expenses and generating profit.

Variable Expenses

Costs that change in direct relation to changes in business activity levels, such as production or sales volume.

Fixed Expenses

Costs that do not vary with the level of production or sales, remaining constant over a specified period of time.

Retailing Organization

A business entity that sells products directly to consumers, typically in small quantities.