Question

Yesterday, you entered into a futures contract to buy €62,500 at $1.25/€. Your initial margin was...

Yesterday, you entered into a futures contract to buy €62,500 at $1.25/€. Your initial margin was $4,000. Your maintenance margin is $2,000 (meaning that your broker leaves you alone until your account balance falls to $2,000). At what settle price do you get a margin call?

A.

$1.5320/€
B.

$1.4720/€
C.

$1.21800/€
D.

$1.2220/€
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Homework Answers

Answer #1

Initial margin = $ 4000

Maintenance margin = $ 2000

Therefore margin call will be made if initial margin falls to maintenance margin that is if it falls by $ 2000 (due to mark-to-market loss in position).

I have long position on €.

Therefore in value of € falls, I would incurr loss

Therefore, settle price at which I get a margin call = 1.25 - 2000/62500 = $ 1.218 / €

Therefore option C is correct

Thumbs up please if satisfied. Thanks :)

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