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A futures market transaction has the feature of marking to market. Explain this concept to a novice, clearly bringing out the concept of settlement price
A futures market transaction has the feature of "marking to market". Explain this concept to a novice, clearly bringing out the concept of settlement price and daily price limit, margin and maintenance margin. You have to use an example to illustrate these concepts. What is the primary purpose of requiring marking-to-market Suppose you as a US investor own a portfolio of British securities valued at $430,000. The exchange rate is currently at $1=0.67. A currency contract on British pounds is set at 62,500 pounds. How many contracts must you trade to protect your portfolio from exchange rate risk? The initial margin on the contract is 10%. What is the return on investment if on closing the exchange rate was $1=0.71. (Hint: First you need to decide whether to go long or short.) A futures market transaction has the feature of "marking to market". Explain this concept to a novice, clearly bringing out the concept of settlement price and daily price limit, margin and maintenance margin. You have to use an example to illustrate these concepts. What is the primary purpose of requiring marking-to-market Suppose you as a US investor own a portfolio of British securities valued at $430,000. The exchange rate is currently at $1=0.67. A currency contract on British pounds is set at 62,500 pounds. How many contracts must you trade to protect your portfolio from exchange rate risk? The initial margin on the contract is 10%. What is the return on investment if on closing the exchange rate was $1=0.71. (Hint: First you need to decide whether to go long or short.)
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