Answer and Explanation:
a) The amount of initially rent equal to the requirement per contact i.e $5,000
b) Now the Profit is
= Future contract × (rise future prices - initial future prices)
= 100 × ($1,255 - $1,250)
= $500
And, the percentage return is
= Profit ÷ requirement
= $500 ÷ $5,000
= 10.00%
c) Now the loss is
= Future contract × (decline future prices - initial future prices)
= 100 × ($1,248 - $1,250)
= -$200
And, the loss percentage return is
= Loss ÷ requirement
= -$200 ÷ $5,000
= -4.00%
d) Now of the price of future price falls so the balance in account left is
= Requirement - future contract × (future price of gold - declined future prices)
= $5,000 - 100 × ($1,250 - $1,238)
= $3,800
Since as we can see the balance is more than the maintenance margin so there is nothing to be done
e) Now if the future price continues to falls to $1,210 so
Balance in the account is
= Requirement - future contract × (future price of gold - declined future prices)
= 5000 - 100 × ($1,250 - $1,210)
= $1,000
As we can see that the balance of the margin account is less than the maintenance margin so the initial margin i.e $5,000 is to be deposited
So, the amount deposited is
= $5,000 - $1,000
= $4,000
f)Now for closing the position can be done by entering into the inverse transaction i.e by selling off one futures contract.
