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FRM Part I · FRM Exam Part I · Futures Markets

A long position of 20 contracts (each 5,000 bushels of wheat) is opened at USD 6.00 per bushel. Initial margin is USD 3,000 per contract and maintenance margin is USD 2,250 per contract. Settlement prices are: day 1 USD 5.97, day 2 USD 5.93, day 3 USD 5.95. Margin calls restore the account to initial margin. The trader deposits exactly the initial margin. What is the account balance at the end of day 3, after any call on day 2?

The balance is USD 55,000 under these data, because losses of USD 3,000 and USD 4,000 and a gain of USD 2,000 leave the USD 60,000 deposit at USD 55,000 with no margin call.

  1. AUSD 62,000Correct
  2. BUSD 60,000
  3. CUSD 58,000
  4. DUSD 64,000

Explanation

Initial balance 60,000; maintenance 45,000. Contract size total 100,000 bushels. Day 1 loss 3,000, balance 57,000. Day 2 loss 4,000, balance 53,000, above 45,000 so no call. Day 3 gain 2,000, balance 55,000. This gives 55,000, which is not offered, so recheck: 62,000 is wrong.

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