FRM Part I · FRM Exam Part I · Central Clearing
A clearing member holds a long position of 100 futures contracts at a CCP. The contract multiplier is 50 units and the previous settlement price was 400. Today's settlement price is 394. Ignoring initial margin, what is the variation margin flow for this clearing member's position?
The member pays 30,000 to the CCP. A long position loses when price falls by 6, and exposure is 100 contracts times 50 units, or 5,000 units. The loss of 6 times 5,000 equals 30,000, which is settled as variation margin.
- AThe member pays 30,000 to the CCPCorrect
- BThe member receives 30,000 from the CCP
- CThe member pays 600 to the CCP
- DThe member receives 600 from the CCP
Explanation
Price change = 394 - 400 = -6 per unit. Position size = 100 x 50 = 5,000 units. Loss on long = 6 x 5,000 = 30,000, so the member pays variation margin of 30,000. Option B has the wrong sign; options C and D omit the multiplier and contract count.
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