Question

Assume today’s settlement price on a CME EUR futures contract is $1.30/€. The contract is written on €125,000 and you have a long position in one contract. The initial performance bond is $6,500, and the maintenance performance bond is $4,000.

**a. On day 1, the settlement price became $1.27/€, what
is your performance bond account balance at end of day 1? Are you
subjected to margin call? If yes, how much additional funds do you
need to deposit in order to keep your position?**

**b. On day 2, the settlement price became $1.31/€, what
is your performance bond account balance at end of day 1? Are you
subjected to margin call? If yes, how much additional funds do you
need to deposit in order to keep your position?**

**c. On day 3, the settlement price became $1.32/€, you
decide to close your position. What is your total gain or
loss?**

Answer #1

Current price of futures in which we have a long position=$1.30 per euro and initial performance bond=$6,500 and maintenance performance bond=$4,000.and value of contract=1,25,000 euros

Day | Settlement price($ per euro) | Gain/Loss($) | Performance bond balance($) | Margin call | Additional funds needed($) |

a | 1.27 | Loss=0.03*1,25,000=3,750 | 6,500-3,750=2,250 | Yes | 3,750 |

b | 1.31 | Gain=0.04*1,25,000=5,000 | 6,500+5,000=11,500 | No | NIL |

c | 1.32 | Gain=.01*1,25,000=1,250 |

Total Gain= 5,000+1,250-3,750=**$2,500**

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