You speculate in crude oil futures. Last month, you purchased ten January futures contracts at a quoted price of 99.91. These contracts are based on 1,000 barrels and quoted in dollars per barrel. Assume the actual price per barrel is $60.20 in January. How much did you gain or lose by hedging your position

Loss of $397,100

Explanation:

The price in future contract is $99.91 per barrel, and actual price is $60.20

The loss per barrel = $99.91 - $60.20 = $39.71

Total loss = 10 contracts * 1000 barrels * loss of $39.71 per barrels =

= 10*1000*$39.71 = $397,100

The amount of loss is $397,100 by hedging the position.

Explanation:

This can be calculated using the following equation:

Profit or loss = Number of contract * 1,000 * (Actual price per barrel - Quoted future price)

Since;

Number of contract = 10

Actual price per barrel = $60.20

Quoted future price = 99.91

By substituting the values into the equation above, we have:

Profit or loss = 10 * 1,000 * ($60.20 - $99.91)

= 10,000 * ( - 39.71)

Profit or loss = - $397,100

Since the figure is negative, the amount of loss is $397,100 by hedging the position.