Question 1 (8 marks)

Today is January 2018 and company ABC, a manufacturer of jewelry, knows it will need to purchase 5,000 ounces of gold in a year to fulfill a large customer order. Each futures contract is for 100 ounces of gold and requires $10,000 initial margin and $8,000 maintenance margin.

The future and spot prices are shown below (per ounce):

Date	Spot Price	Future/Forward Price
Jan-2018	1000	950
July-2018	1020	990
Jan-2019	1060	1060

a) What is the initial margin? (2 marks)

b) How much money must (can) the company deposit (withdraw) on July 2018? Specify if it is a deposit or withdrawal. (2 marks)

c) What is the actual total cost per ounce of gold (inclusive of gains/losses on the futures contract) when the company buys the gold on Jan 2019? (2 marks)

d) Suppose the customer modifies the order and ABC must purchase the gold in July 2018. What would be the total cost per ounce to ABC? (2 marks)