(i) Explain how you would speculate using a futures contract.
(ii) If the market price of Kingsher Airlines is INR 45.45 and the April futures price is INR 46.25 on April 19, what
would be your speculative gain?
Solution to Problem 7.8
(i) Since you expect the price to decrease, speculation involves:
(a) Taking a short position in Kingsher Airlines futures on April 15 at INR 47.75; and
(b) Closing your short position on April 19 by entering into a long Kingsher Airlines futures contract at the
prevailing futures price.
(ii) Speculative gain = (Price at the time of opening the position – Price at the time of closing the position)
× Contract size × Number of contracts
erefore,
Gain = (47.75 ...
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