Answered step by step
Verified Expert Solution
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
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
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