Question

Assume that today’s settlement price on a CME EUR futures contract is the open price. Your performance bond account currently has a balance of $1700. The next three days settlement prices are +1%, +2% and -2% from today’s open price. Calculate the changes in the Performance bond account from daily marking to market and the balance of the performance bond account after the third day. Provide calculations where necessary to support your answer.

Answer 1

As per the above data given, we assume the open price be 1.3140

Next 3 days settlement prices will be:

Day 1 - >1.3140 + 1% = 1.3271

Day 2 - >1.3271 + 2% = 1.3536

Day 3 -> 1.3536 - 2% = 1.3265

Initial Account Balance = $1700

Day 1: Closing Price = 1.3271

(1.3140 - 1.3271)(125000) = -0.0131 X 125000 = -1637.50

Current Balance = $1700 - $1637.50 = $62.50

Day 2: Closing Price = 1.3536

(1.3271 - 1.3536)(125000) = -0.0265 X 125000 = -3312.50

Current Balance = $62.50 - $3312.50 = -$3250.00

Day 3: Closing Balance = 1.3265

(1.3536 - 1.3265)(125000) = 0.0271 X 125000 = 3387.50

Current Balance = -$3250.00 + $3387.50 = $137.50

*Note - In the above calculations, we have taken EUR 125000 which is the contractual size of one EUR account