Question

Logan sold a corn futures contract using the initial margin of $2,700. His maintenance margin is $2,000. The price began to rise in early summer, but Logan wants to keep his contract. When his margin falls below $2,000 (minimum maintenance)

A. his contract will be automatically sold or canceled.

B. he does not need to do anything since the most he can lose is $2,700.

C. he will need to deposit at least $700 with his broker to bring his margin back up to the initial deposit.

D. he will need to deliver the corn immediately.

Answer 1

Solution :-

Thecorrect answer is (c) that is he will need to deposit at least $700 with his broker to bring his margin back up to the initial deposit.

As Initial margin is the margin which an investor need to have deposited while doing contract and maintenance margin is the margin that an investor must have to maintain. and in case the margin go below the maintenance margin due to loss. Then investor again needs to have deposit the amount upto intial margin.