One year ago, you entered into a futures contract to buy 100,000 euros at a futures contract price of $1.22, with a settlement date in one year. Assume that at the contract's maturity the spot rate of the euro is $1.25, Determine the total dollar amount of your profit or loss from speculating with the futures contract.

Profit of $3000

Explanation:

The exchange rate of a future contract is usually fixed at the time when the contract is buy 100,000 euros at a futures contract price of $1.22.

The Value in dollars at the time is: $122,000

At the maturity spot rate of the euro is $1.25.

The value of the contract is: $125,000

The difference:

$125,000-122,000

=$3000.

Since the maturity spot rate is higher, there is a profit of $3000 from speculating with the futures contract.

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