(a) The transferring of risk onto the clearing house is not something unique to futures trading. In fact, most of financial intermediaries such as insurance companies, finance companies and bank take on risk transferred to them and manage these risks.

Based on the above statement, discuss the TWO (2) types of margins in derivatives markets.

(10 marks)

(b) You as a farmer have gone short 15 March Cocoa futures contracts. The 5-day period using hypothetical futures settlement prices. On the day 0 which both parties enter the contract. Given the following information, determine the daily marking-to-market adjustment to both you and the counterparty account. (Assuming same total value)

Contract size = 10 tons per contract

Initial margin = 10 percent of total value

Maintenance margin = 70 percent of initial margin

Day	Cocoa Futures Settlement Price (RM per ton)	Your account adjustment(RM)	Balance (RM)	Counterparty adjustment(RM)	Balance (RM)
0	100
1	95
2	96
3	98
4	96
5	90