Imagine it is 10 July 2020. A UK company has a US$6.65m invoice to pay on 26 August 2020. They are concerned that exchange rate fluctuations could increase the cost and, hence, seek to effectively fix the cost using exchange traded futures. The current spot rate is $/1.71110.

/$ futures, where the contract size is denominated in , are available on the CME Europe exchange:

September expiry 1.71035

December expiry 1.70865

The contract size is 100,000 and the futures are quoted in US$ per 1. The contract specification for the futures states that the tick size is 0.00001$ and that the tick value is $1.

Outcome on 26 August:

On 26 August the following was true: Spot rate $/ 1.65770

September futures price $/1.65750

In the scenario above the CME contract specification for the /$ futures states that an initial margin of $1,375 per contract is required. The maintenance margin is $1,250 per contract. The settlement prices for this future are:

Settlement price on 11 July (Friday) 1.70925

Settlement price on 14 July (Monday) 1.70805

Settlement price on 15 July (Tuesday) 1.71350

Required:(please 1000~1200words)

1. Determine the daily balance in the margin account.

   For part b:

   1. Obtain the no. of futures contract that will be required form part (a) 3

   2. Calculate the total amount of initial margin required

   3. Calculate the total amount of maintenance margin

   4. Calculate profit/loss of futures contract by making-to-market

   5. Determine the margin balance

   6. determine any margin call and top-up required