1. The open interest in a futures contract changes from day to day. Suppose investors holding long

positions are divided into two groups: A is an individual investor and OL represents other investors.

Investors holding short positions are denoted as S. Currently, A holds 1,000 contracts and OL holds

4,200; thus, S is short 5,200 contracts. Determine the holding of A, OL and S after each of the following

transactions. Treat each transaction independently. For example, the transaction in b ignores the

transaction a.

a. A sells 500 contracts; OL buys 500 contracts

b. A buys 700 contracts; OL sells 700 contracts

c. A buys 200 contracts; S sells 200 contacts

d. A sells 800 contracts; S buys 800 contracts

e. What determines whether new volume increases or decreases the open interest?2. An investor enters into a short futures position in 10 contracts in gold at a futures price of $276.50 per

oz. The size of one futures contract is 100 oz. The initial margin per contract is $1,500, and the

maintenance margin is $1,100.

a. What is the initial size of the margin account?

b. Suppose the futures settlement price on the first day is $278.00 per oz. What is the new balance in the

margin account? Does a margin call occur? If so, assume that the account is topped back to its original

level.

c. The futures settlement price on the second day is $281.00 per oz. What is the new balance in the

margin account? Does a margin call occur? If so, assume that the account is topped back to its original

level.

d. On the third day, the investor closes out the short position at a futures price of $276.00. What is the

final balance in his margin account?

e. Ignoring interest costs, what are his total gains or losses?