Try this 2 part question: Part 1 It is April 15, and a trader is entered into a short position in two soybean meal futures contracts. The contracts expire on August 15, and call for the delivery of 100 tons of soybean meal each. Further, because this is a futures position, it requires the posting of a $3,000 initial margin and a $1,500 maintenance margin per contract. For simplicity, however, assume that the account is marked to market on a monthly basis. Assume the following represent the contract delivery prices (in dollars per ton) that prevail on each settlement date: April 15 (initiation) 173.00 May 15 179.75 June 15 189.00 July 15 182.50 August 15 (delivery) 174.25 What is the equity value of the margin account on the May 15 settlement date, including any additional equity that is required to meet a margin call? A) $4,650. B) $2,300. C) $1,350. D) $$7,350. Part 2 Based on the May 15 settlement date, which of the following is TRUE? A) No margin call or disbursement occurs. B) Since the equity value of the margin account is above the initial margin, the trader can withdraw $1,350. C) Since the equity value of the margin account is below the maintenance margin, a variation margin is called to restore the equity value of the account to it’s initial level. D) Since the equity value fell below the initial margin level, a variation margin of $650 is called.
C 179.75-173 = 6.75 * 200 = 1350 C. margin account is below maintenance margin and therefore must be brought back up to its initial level since it is a futures contract…had this been stock on margin we would only have to raise it back up to the maintenance level.
A and A. Post $6k in equity. Lose $1.35k on mark to market. Margin account now equals $4,650 which is more than maintenance margin of $1.5k * 2 = $3k.
A (He will Lose as the equity value went up - 6.75*200= 1350 (3000*2-1350) = 4650 C What are the answers?
looks like I forgot to add the loss to the original cost.
A A
finance03, both your answers are correct. it’s A and A. For some reason, I assumed the initial margin of 3000 was for both contract, so I didn’t multiply it by 2.
so in this case would we multiply the maintenance margin by two as well since we possess two short contracts?
yap.