Question

Your broker requires an initial margin of $878 per futures contract on wheat and a maintenance margin of $650 per contract. Wheat futures contracts are based on 5,000 bushels and quoted in cents per bushel. You sold 6 wheat futures contracts at a price quote of 385 cents per bushels. Today, the settlement quote is 390 cents per bushels. Will you receive a margin call and if so, for what amount (6 contracts totally)? Assume you have not received any previous margin calls. Select one: a. Call for $22 b. Call for $1,500 c. No margin call d. Call for $250 e. Call for $132

Answer 1

Answer:

b. Call for $1,500

Explanation:

According to the scenario, computation of the given data are as follow:-

We can calculate the amount of margin call by using following formula:-

Loss of today = future contracts based total bushels × total contract × (settlement cost per bushels - future contract price per bushels)

= 5,000 cents × 6 × (390 cents  - 385 cents)

= 5,000 cents × 6 × 5 cents

= 150,000 cents

And we know that

100 cents = 1 dollar

so,

150,000 cents ÷ 100 =$1,500

Initial margin $878 per future contract and maintenance margin $650 per contract, Margins of both are less than loss .So we have to pay $1,500 in initial margin.

According to the analysis, we will receive $1,500 margin call.

Therefore option (B) call for $1,500 is correct.