# Need some help - margins and reserve

These are Schweser questions. Could you please help me out with the method of getting answer? 1) Julia Chen, a portfolio manager for US based Dane Investments has just established a short position in Swiss franc currency futures as part of a currency overlay strategy. The position consists of 100,000 contracts with an initial margin of \$4000, a maintenance margin of \$2500 and a contract price of 0.8060 USD/CHF. If the futures price on the subsequent three days is 0.8240, 0.7868 and 0.7994, on which day will Chen receive a margin call and what will be her margin account balance at the end of the second day? Ans: 2nd day; MArgin a/c balance 7720 at the end of second day. 2) Assume a bank currently has 105 million in outstanding deposits with actual reserves of 30 million. The required reserve ratio is 20%. Based on the information provided calculate the maximum potential increase in the money supply. Ans: 45 million. Could you please help with explanation to the above answers. Thanks. Regards.

for the 2nd one: they have 9 Mio excess reserves. Whe they lend it there can be up to 9/20% = 45 mio new money.

for the first one at the end of the first day the loss is \$1800 (100,000 x (0.824-0.806)), bringing the margin balance down to \$2200. since this is less than the maintenance margin of \$2500, you get a margin call for the variation margin to bring the margin account balance up to the initial margin of \$4000. so at the end of the first day, \$1800 goes back into the margin account for a total end of day balance of \$4000. the profit on the second day is \$3720 (100000 x (0.824 - 0.7868); since no loss was incurred below the maintenance margin, you don’t have to put anymore money in, and the total margin balance at the end of the second day is 4000 + 3720 = 7720.

For the 1st one: Day Deposit Starting Gain/Loss Ending 0 4000 0 0 4000 1 0 4000 -1800 2200 (Margin Call; below 2500) 2 1800 4000 3720 7720 Does this help?

For the 1st question, I got the same ending value but a diff answer for the margin call. Here’s how I went through it: She shorted the Swiss franc future, so she’s short the franc and long the dollar (not sure about this, but it makes sense in my mind) Day 1: Beg value: \$4000 Price goes from .806 to .824, so take the diff, multiply by 100,000 and get 1800. Since she’s short the fran, she loses 1800. End value: \$2200. Maintenance margin is \$2500, so she has to replenish back to the full \$4000. Day 2: Beg value: \$4000 Price goes from .824 to .7868, take the diff, multiply by 100,000 and get 1420. She’s short the fran so that represents a gain. End value: \$7720 Day 3: Beg value: \$7720 Price goes from .7868 to .7994., take the diff, multiply by 100,000 and get 1260. She loses 1260. End value: \$6460

Thanks loads. I wonder if Im being silly, but if its a loss on the first day - dont you get a margin call on that day itself? How come the answer says margin call on the second day?

Thanks ludwig.wittgenstein, That was simple!

Good point, maybe: Day 0 to day 1 = 1. day Day 1 to day 2 = 2. day Other than that I have no idea, except Schweser being a little confusing, never traded futures :-/ If there is only one option with the 7720 ending value, I’d just take that and don’t bother further.

Well there was another option with Day 3 - nothing with Day 1 - so I guess your point makes sense. Good luck!