Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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 Ib and
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 Ib and buys a further five March 2020 copper futures contracts on 30 January 2020 at a price of US$2.5280 per Ib. The speculator closes out her long futures position on 12 February 2020 at a price of US$2.5975 per Ib. 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: Date 15/01/2020 16/01/2020 17/01/2020 21/01/2020 22/01/2020 23/01/2020 24/01/2020 27/01/2020 28/01/2020 29/01/2020 Settlement price 2.8660 2.8470 2.8455 2.7935 2.7650 2.7260 2.6840 2.5965 2.5795 2.5540 Date 30/01/2020 31/01/2020 03/02/2020 04/02/2020 05/02/2020 06/02/2020 07/02/2020 10/02/2020 11/02/2020 12/02/2020 Settlement price 2.5240 2.5170 2.5070 2.5420 2.5745 2.5930 2.5530 2.5505 2.5830 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
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started