FRM Part I · FRM Exam Part I · Futures Markets
A trader buys 10 futures contracts at 1,200 per unit. Each contract covers 50 units. Initial margin is 4,000 per contract and maintenance margin is 3,000 per contract. The trader deposits exactly the initial margin. At what futures price (per unit) will the first margin call be triggered, i.e. the price below which the account falls under maintenance margin?
The margin call threshold is 1,180. The 10,000 cushion between 40,000 initial and 30,000 maintenance margin, divided by 500 of exposure per one-point price move (10 contracts times 50 units), gives a 20-point fall from 1,200.
- A1,180Correct
- B1,190
- C1,160
- D1,170
Explanation
Account balance is 10 x 4,000 = 40,000 and maintenance level is 10 x 3,000 = 30,000. The cushion is 10,000. Loss per unit of price is 10 x 50 = 500, so a fall of 20 to 1,180 uses the cushion. A call occurs below 1,180. Using 1,190 only loses 5,000, and 1,160 would be a 40-point drop, which loses 20,000.
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