Mr. X, an active stock market investor decides to invest (Buy) USD 250000 for a period of 6 month in S&P 500. The spot USD/INR rate at that time was 48.25 and currency futures rate was.48.65. After 6 months, the market moves as per his expectation and his investment goes up by 15 %. If spot USD/INR exchange rate moves to 45.46 and currency futures rate moves to 45.95, what position he has to take in futures contracts and how much profit/loss he makes.

      Mr. X, an active stock market investor decides to invest (Buy) USD 250000 for a period of 6 month in S&P 500. The spot USD/INR rate at that time was 48.25 and currency futures rate was 48.65. After 6 months, the market moves as per his expectation and his investment goes up by 15 %. If spot USD/INR exchange rate moves to 45.46 and currency futures rate moves to 45.95, what position he has to take in futures contracts and how much profit/loss he makes.

A. Long, Profit Rs. 1785300

B. Long, Loss Rs. 1753800

C. Short, Profit Rs. 1783500

D. Short, Loss Rs. 1753800

Ans: (C)

Explanation:

Mr. X investment USD 250000, return @ 15%, 250000*15/100 = 37500; 250000+37500 = 287500

Spot rate at the time of investment is 48.25; 250000*48.25= 12062500

Spot rate after 6 month is 45.46; 2875500*45.46 = 13069750

Profit in spot: 13069750 - 12062500 = 1007250

Sell position in Future at 48.65: 287500*48.65 = 13986875

Squared off at 45.95: 287500*45.95 = 13210625

Profit in future: 13986875-13210625 = 776250

Total profit: 1007250 + 776250 = Rs 1783500