Question
Question 1. Margin Account and Settlement (6 marks) Suppose that you bought two one-year gold futures contracts when the one-year futures price of gold was
Question 1. Margin Account and Settlement (6 marks)
Suppose that you bought two one-year gold futures contracts when the one-year futures price of gold was US$1,340.30 per troy ounce. You then closed the position at the end of the sixth trading day. The initial margin requirement is US$5,940 per contract, and the maintenance margin requirement is US$5,400 per contract. One contract is for 100 troy ounces of gold. The daily prices on the intervening trading days are shown in the following table.
Day | Settlement Price |
0 | 1340.30 |
1 | 1345.50 |
2 | 1339.20 |
3 | 1330.60 |
4 | 1327.70 |
5 | 1337.70 |
6 | 1340.60 |
Assume that you deposit the initial margin and do not withdraw the excess on any given day. Whenever a margin call occurs on Day t, you would make a deposit to bring the balance up to meet the initial margin requirement at the start of trading on Day t+1, i.e., the next day.
b. Fill the appropriate numbers in the blank cells in the following table.
Day | Settlement price per troy ounce | Mark-to-Market | Other Entries | Account Balance | Explanation | Margin Call? Y/N |
0 | $1340.30 | |||||
1 | $1345.50 | |||||
2 | $1339.20 | |||||
3 | $1330.60 | |||||
4 | $1327.70 | |||||
5 | $1337.70 | |||||
6 | $1340.60 |
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