
80 Derivatives and Risk Management
total for 100 grams, which is the dierence between the amount he needs to pay to buy at INR 1,450 per
gram and the amount he would have paid in the market to buy gold at INR 1,340 per gram.
Suppose there are gold futures contracts available and the futures price on January 1 is INR 1,450 per
gram, and suppose Nikhil enters into a futures contract; since he can see that the gold price has dropped
to INR 1,375 per gram on February 5 and the price is expected to fall further, he can get out of the
futures contract altogether by selling the futures contract in the market at INR 1,402 per gram, which ...