Question
Futures Daily Settlement. Consider the following sequence of prices for a currency futures contract. Each contact involves 10,000 units of the foreign currency. The initial
Futures Daily Settlement. Consider the following sequence of prices for a currency futures contract. Each contact involves 10,000 units of the foreign currency. The initial and maintenance margin requirements are USD 800 and USD 500 respectively.
a) Calculate the daily margin account balances for the long and the short. Assume that the long bought the futures at a price of 1.67 and that the futures contract is held to expiration, which is in day 6. (Make sure you indicate the initiation of any margin calls. If a margin call occurs, assume that the margin balances are replenished to the level of initial margin balances)
Day Futures Price Margin Account Balances (Long) Margin Account Balances (Short)
1 1.72
2 1.68
3 1.61
4 1.55
5 1.60
6 1.62
b) What is the percentage change in the futures price during the holding period?
c) What is the rate of return for the long position?
d) What is the rate of return for the short position?
e) What is the leverage factor (ratio) given the futures price in day 1?
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