Question

2. Suppose that you want to bet that the Fed will certainly raise rates at its September meeting–and most likely by at least 50 basis points, so you enter a short position in 25 contracts. (a) Show your margin account when you do this trade. (b) Suppose that on August 30 2018, the Greek government announces that it is defaulting on its sovereign debt and exiting the Eurozone. Concurrently the Fed announces an emergency cut to the Federal Funds rate target to 2.5%. The value of the September contract increases to 97.2. What happens to your margin account? Will you receive a margin call? If so, how much additional funds must you place in that account?

Answer 1

Solution :-

In case of Short position with 25 contracts

(a) When the rate of the Fed rising then our notional profit will increased in our trading account that means the MTM (Mark to marin ) will increase.

(b) Now if the Fed can cut off its federal funds target rate to 2.5% then the Notional loss will happened and after a certain loss the balance of our margin account will reduce.

Yes , after a centain loss when the balance of our margin is go below the maintenance margin then we will receive a margin call.

Here the all figures are not given so the exact amount i cant able to tell But if you want oral then it would be the diffrence of initial margin and the current notional balance