Question
Use the following information to answer the next three questions. On Monday, an American company decides to hedge a receipt of British pounds by creating
Use the following information to answer the next three questions.
On Monday, an American company decides to hedge a receipt of British pounds by creating a portfolio consisting of two pound futures contracts that mature on Thursday. Each contract has 62,500 pounds attached. The futures price on Monday is $1.85/BP. Assume that the initial margin and maintenance margin is $1485 and $1150 per contract, respectively. The futures prices over the next three days (Tuesday-Thursday) are as follows: $1.855, $1.865, and $1.86.
1. How much money will the investor need to open his margin position?
$121,875 | ||
$2300 | ||
$125,000 | ||
$2970 |
2. Find the investor's ending margin balance on Tuesday. (Assume any deficits are eliminated to keep the account open and any excess funds remain in the account)
2345
2970
2000
3595
3. Find the investor's ending margin balance on Thursday. (Assume any deficits are eliminated to keep the account open and any excess funds remain in the account)
3595
4220
1720
11095
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