Please explain !! 1. A futures trader must deposit an additional amount of money into a margin account at the clearinghouse if the margin account ending balance is below the: A. initial margin requirement. B. variation margin requirement. C. maintenance margin requirement. D. amount of the loan borrowed from the clearinghouse Is the answer “C” or “A”??? 2. A futures trader goes long one futures contract at $450. The settlement price 1 day before expiration is $500. On expiration day, the future is trading at $505. The least likely way the futures trader will lock in her profits on expiration is: A. take delivery of the underlying asset and pay $500 to the short. B. close out the futures position by selling the futures contract at $505. C. take delivery of the underlying asset and pay the expiration settlement price to the short. D. cash settle the futures and receive the difference between $500 and the expiration settlement price
shahravi123 Wrote: ------------------------------------------------------- > Please explain !! > > 1. A futures trader must deposit an additional > amount of money into a margin account at the > clearinghouse if the margin account ending balance > is below the: > A. initial margin requirement. > B. variation margin requirement. > C. maintenance margin requirement. > D. amount of the loan borrowed from the > clearinghouse > > Is the answer “C” or “A”??? > C, below MM, but they bring it up to IM. it is confusing, i know
- C balance below maintenance margin --> margin call --> deposit back to initial margin 2. my guess would be A
ANYONE KNOW THIS ONE, I AM LOST, I WANNA SAY A, TOO > > 2. A futures trader goes long one futures contract > at $450. The settlement price 1 day before > expiration is $500. On expiration day, the future > is trading at $505. The least likely way the > futures trader will lock in her profits on > expiration is: > > A. take delivery of the underlying asset and pay > $500 to the short. > B. close out the futures position by selling the > futures contract at $505. > C. take delivery of the underlying asset and pay > the expiration settlement price to the short. > D. cash settle the futures and receive the > difference between $500 and the expiration > settlement price
For Question 1 . Answer is C , so when the balance in the future account is less than the Maintenance Margin , the trader has to pump in the money to bring it to the Initial Margin .But for the securities market, trader just need to bring it to the maintenance margin. For Question 2 . Answer is A .Why long will pay $500 to short when he is already getting the delivery for 450 .Rather the short will pay (505-450) to settle the contract. Regards, Gaurav
C & C A is absoluetly meaningless for the long to do because he is already $50 above the contracted price. But doing C is EVEN MORE stupid. because the price is $55 above the contracted price.
For the first one, its clearly C For the second one, B & D is out, cuz the long trader still get some money. A is a horrible choice for him, cuz he has to pay 500 for delivery, when he has a contract for 450. But C is even worse choice cuz he has to pay 505 when his contract is for 450. So I’d say C for second one. C, C
For number #2, I think the question is should be “…what is the *most likely* way the futures trader will lock in her profits on expiration”, and the answer is B.
Dreary, but given the way the question is stated, is C the right one?
pepp Wrote: ------------------------------------------------------- > For the first one, its clearly C > > For the second one, B & D is out, cuz the long > trader still get some money. A is a horrible > choice for him, cuz he has to pay 500 for > delivery, when he has a contract for 450. Futures contracts don’t work like that. If you enter into a futures contract for corn at 4.50 per bushel but then corn goes to 7.00/bu and you take delivery, you are getting invoiced for 7.00/bu. Fortunately for you, your futures margin account has been credited with 2.50/bu so the net cost to you is still 4.50/bu. > But C is > even worse choice cuz he has to pay 505 when his > contract is for 450. So I’d say C for second one. > > > C, C
For Part 2, I’m a bit confused on the concept, I thought settlement = expiration. Any gain/loss incurred on the contract would be netted between the agreed-upon contract price ($450) and the settlement price on expiration ($505). Isn’t the day before expiration price ($500) completely irrelevant?
Expiration happens on the last day the contract is traded. Settlement happens every day.
Futures settlement happens every day end. The day before the price was 500$ and the next day its at 505$. All he has to get for that day is 5$ and walkout. Whatever he must have made before that, he would have already received it. A. take delivery of the underlying asset and pay 500 to the short. He would pay 500 and receive asset and sell for 505$ market price and make 5$. Makes sense. He can do that. B. close out the futures position by selling the futures contract at 505. This is the close-out strategy. He sells the contract to someone else for 505 USD and liquidates his present position by paying 500 USD (earlier day close) and makes 5 USD and walks off. C. take delivery of the underlying asset and pay the expiration settlement price to the short. He wont do this. If he pays 505 , how is he going to make the 5$. Market price is also 505$ presently. D. cash settle the futures and receive the difference between 500 and the expiration settlement price This is the most logical approach. He can very well do this and make the 5 . So, answer is C.