The March 2000 Mexican peso futures contract contains a price of $0.11695. You believe the spot price will be $0.09550 in March. What speculative location would you enter into to try to profit from your beliefs? Compute your anticipated profits supposing you take a position in three contracts. Estimate size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?
If you expect the Mexican peso to increase from $0.09550 to $0.11000, you would take a long position in futures as the futures price of $0.09550 is less than your expected spot price.
Your anticipated profit through a long position in three contracts is: 3 x ($0.11000 - $0.09550) x MP500,000 = $21,750.00, where MP500,000 is the contractual size of one MP contract.
If the futures price is unbiased predictor of the expected spot price, the expected spot price is the futures price of $0.09550/MP. If this spot price materializes, you will not contain any profits or losses from your short position in three futures contracts: 3 x ($0.09550 - $0. 09550) x MP500,000 = 0.