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FRM Part I · FRM Exam Part I · Introduction to Derivatives

A trader buys 10 crude oil futures contracts, each covering 1,000 barrels, at USD 80.00 per barrel. The initial margin is USD 6,000 per contract and the maintenance margin is USD 4,500 per contract. Assuming no other margin flows, at what futures price per barrel does the first margin call occur?

The margin call is triggered when the futures price falls below USD 78.50. The margin account has a buffer of USD 1,500 per contract (6,000 minus 4,500), which over 1,000 barrels equals a USD 1.50 per barrel decline from 80.00.

  1. AUSD 78.50Correct
  2. BUSD 79.25
  3. CUSD 77.50
  4. DUSD 79.50

Explanation

Margin per contract falls from 6,000 to below 4,500 after a loss of more than 1,500 per contract. With 1,000 barrels, that is a price decline of 1.50 per barrel. The price must fall below 80.00 - 1.50 = 78.50. Distractor 79.25 wrongly uses a 750 buffer, and 77.50 confuses the buffer with 2.50.

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