Question

Assume today’s settlement price on a CME EUR futures contract is \$1.30/€. The contract is written...

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?

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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