Question
The current futures price for cocoa is $2543 per metric ton. Suppose you expect the price of cocoa to fall and you enter a short
The current futures price for cocoa is $2543 per metric ton. Suppose you expect the price of cocoa to fall and you enter a short position into one futures contract to sell cocoa. Assume that each cocoa contract is for 10 metric tons of cocoa, the initial margin requirement is 12% and the maintenance margin is 5%.
(a) What is the amount that you must deposit (either in cash or in securities) into your margin account to open this future contract?
(b) Suppose that the price of cocoa falls to $2500 per metric ton. What will happen to your margin account?
(c) Suppose that the price of cocoa rises to $2650 per metric ton. Will you receive a margin call? What if anything must you do with your account?
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