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The Sugar No. 11 contract is the world benchmark contract for raw sugar trading. The contract prices the physical delivery of raw cane sugar, free-on-board
The Sugar No. 11 contract is the world benchmark contract for raw sugar trading. The contract prices the physical delivery of raw cane sugar, free-on-board the receiver's vessel to a port within the country of origin of the sugar.' On 22 June 2021, a speculator buys four September 2021 No. 11 sugar futures contracts on ICE at a price of US$0.180 per pound. The speculator closes out her futures position on 8 July 2021 at a price of US$0.150 per pound. The No. 11 sugar futures contract is written on 112,000 pounds of sugar and, for the speculator, the initial and maintenance margins are $3,010 and $2,150 per contract respectively. The daily settlement price for the September 2021 No. 11 sugar futures contract during the period between 22 June and 8 July 2021 are shown in the table below. Required: (a) At the time the futures position is established on 22 June 2021, what is the minimum price movement that would generate a margin call in relation to one futures contract only? Report your answer in cents with 2 decimal places (2 dps). (3 mark) (b) Construct a table as below to illustrate the daily marking-to-market (and final settlement) of the speculator's overall futures position, being long four contracts. Assume no withdrawals of any money deposited to the Initial and Margin account balance. If there is a shortfall in the Initial and Margin account balance at the end of any trading day, assume the speculator will fund the margin account immediately (i.e., the same day). (13 marks)
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