Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed

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? [5 Points] (b) Suppose that the price of cocoa falls to $2500 per metric ton. What will happen to your margin account? [4 Points] (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? [6 Points)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Understanding financial statements

Authors: Lyn M. Fraser, Aileen Ormiston

9th Edition

136086241, 978-0136086246

More Books

Students also viewed these Finance questions

Question

=+(iii) show the settlement value of the invoice;

Answered: 1 week ago

Question

Theyre selling a well designed machine.

Answered: 1 week ago