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CMA Final · Strategic Financial Management · Forwards and Futures

A manufacturer buys 50 lots of copper futures, each lot of 1,000 kg, at Rs 700 per kg. Initial margin is Rs 35,000 per lot and maintenance margin is 80% of initial. Next day the futures settle at Rs 693 per kg. What is the margin call amount, if any, to restore initial margin?

No margin call arises. The loss is Rs 7,000 per lot, leaving Rs 28,000, exactly equal to the maintenance margin of 80% of Rs 35,000. A call is made only when the balance falls below maintenance, so the account is not called.

  1. ARs 3,50,000Correct
  2. BRs 17,50,000
  3. CRs 7,00,000
  4. DNo margin call

Explanation

Loss per lot = 7 x 1,000 = Rs 7,000. Balance = 35,000 - 7,000 = 28,000, which equals the maintenance level of 80% x 35,000 = 28,000. It is not below maintenance, so no call arises. Rs 3,50,000 is the total loss on 50 lots, not a call.

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