Hi All, One question from Book 7 practice exam 1 morning session. Julia establish short in swiss franc futures. The position consists of 100,000 contrac with initial margin of $4000, maintenance margin of $2500, and contract price of 0.8060 USD/CHF. If futures price on subsequent 3 days is 0.8240, 0.7868, and 0.7994, which day will julia gets a margin call, and what will be her margin account balance at end of second day ? Julia will get margin call on : A. 3rd day, and will have margin account balance of $7720 at end of 2nd day B. 2nd day, and will have margin account balance of $7720 at end of 2nd day C. 3rd day, and will have margin account balance of $6220 at end of 2nd day D. 2nd day, and will have margin account balance of $6220 at end of 2nd day Thanks
B. Initial margin is $4000, and price is .806. Day 1, the price goes up, which means the short position loses value, and her ending balance will be $4000 - [(.824-.806)*100,000] = $2200. Day 2, she gets a margin call and deposits $1800 to bring her margin back up to the initial margin, and the price declines, which means she gains. Ending Balance is $4000 - [(.7868-.824)*100,000] = $7,720.
I concur with Stephen B. An easy way to find margin call: (Initial Margin-Maintenance Margin)/contract size (4000-2500)/100,000=.015 If the price moves above or below this amount, you’d see a margin call depending on which side of the trade you are on. If you short, anything that is .015 above the original price (.806+.015) would mean a margin call. If long, obviously the inverse is true.
Thanks a lot for the clarification!