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FRM Part I · FRM Exam Part I · Futures Markets

A trader buys 10 gold futures contracts, each covering 100 ounces, at USD 2,000 per ounce. The initial margin is USD 8,000 per contract and the maintenance margin is USD 6,000 per contract. At the end of the first day the settlement price is USD 1,985 per ounce. What is the balance in the trader's margin account at the end of the day, assuming the initial margin was deposited and no withdrawals were made?

The balance is USD 65,000. The price fall of USD 15 per ounce on 1,000 ounces produces a USD 15,000 loss, which is debited from the USD 80,000 initial margin through daily settlement. The result is above the USD 60,000 maintenance level.

  1. AUSD 65,000Correct
  2. BUSD 80,000
  3. CUSD 95,000
  4. DUSD 70,000

Explanation

Loss = 10 contracts x 100 oz x USD 15 = USD 15,000. Balance = 80,000 - 15,000 = USD 65,000. Using 8,000 x 10 = 80,000 initial. Since 65,000 exceeds the maintenance total of 60,000, no margin call arises. USD 95,000 wrongly adds the loss as a gain.

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