Question

Show work please

Assume the current spot price for crude oil is $65.25 per barrel and the futures

price for crude oil is $65.30 per barrel. A futures contract is for 1000 barrels.

On Monday, Stacey buys one futures contract from Ben. Both Stacey and Ben are

speculators in this futures market, whose initial margin requirement is $6,500 and

whose margin maintenance requirement is $5,000. For hedgers the initial

margin requirement is the same as the margin maintenance requirement. Assume that Stacey and

Ben will always keep the minimum required amount in their margin accounts. Also, assume

(artificially) that no marking to market is done on the expiration date of the contract.

1. How much must Stacey deposit in her margin account in order to buy this

   futures contract?

2. How much must Ben deposit in his margin account in order to sell this

   futures contract?

Answer 1

1]

The initial margin requirement is $6,500. This is the minimum amount required to be in the account to initiate a trade in one futures contract (of 1000 barrels), irrespective of whether one is buying or selling the contract, and irrespective of whether one is a hedger or a speculator, and irrespective of the price of the contract.

Therefore, Stacey must deposit $6,500 in her account to buy this contract, since they will keep only the minimum required amount in their margin account

2]

The initial margin requirement is $6,500. This is the minimum amount required to be in the account to initiate a trade in one futures contract (of 1000 barrels), irrespective of whether one is buying or selling the contract, and irrespective of whether one is a hedger or a speculator, and irrespective of the price of the contract.

Therefore, Ben must deposit $6,500 in her account to sell this contract, since they will keep only the minimum required amount in their margin account