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Question 1 A speculator buys five March 2020 copper futures contracts on COMEX on 15 January 2020 at a price of US$2.8655 per lb
Question 1 A speculator buys five March 2020 copper futures contracts on COMEX on 15 January 2020 at a price of US$2.8655 per lb and buys a further five March 2020 copper futures contracts on 30 January 2020 at a price of US$2.5280 per lb. The speculator closes out her long futures position on 12 February 2020 at a price of US$2.5975 per lb. The COMEX copper futures contract is written on 25,000 lbs of copper. For a speculator, COMEX sets the maintenance margin at US$2,700 per contract and the initial margin at 110% of the maintenance margin. Daily settlement prices (in US$ per lb) of the March 2020 copper futures contract during the period 15 January - 12 February 2020 are as follows: Settlement Settlement Date price Date price 15/01/2020 2.8660 30/01/2020 2.5240 16/01/2020 2.8470 31/01/2020 2.5170 17/01/2020 2.8455 03/02/2020 2.5070 21/01/2020 2.7935 04/02/2020 2.5420 22/01/2020 2.7650 05/02/2020 2.5745 23/01/2020 2.7260 06/02/2020 2.5930 24/01/2020 2.6840 07/02/2020 2.5530 27/01/2020 2.5965 10/02/2020 2.5505 28/01/2020 2.5795 11/02/2020 2.5830 29/01/2020 2.5540 12/02/2020 2.6000 Required (a) At the time the initial futures position is established, what is the minimum price movement that will generate a margin call? (1 mark) (b) Complete Template A showing the daily marking-to-market (and final settlement) of the speculator's futures position. This template is similar in format to Table 2.1 on page 30 in your textbook. Enter the appropriate figures or formulae only in cells that have been shaded grey. Do not make any changes to the format of Template A. (5 marks) (c) Calculate the overall profit/loss of the speculator and decompose this figure into two components: (i) total margin calls, and (ii) the change in the margin account balance. (2 marks) Total: 8 marks
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