FRM Part I · FRM Exam Part I · Futures Markets
A trader buys one futures contract on 1,000 units of a commodity at 50.00. Initial margin is 4,000 and the maintenance margin is 3,000. The futures price falls to 48.50 on day 1 and to 47.80 on day 2, with no withdrawals or deposits. What is the margin call amount, if any, on day 2 to restore the account to the initial margin?
With no deposits, total losses are 2,200 (1,500 plus 700), leaving 1,800, below the 3,000 maintenance level. The margin call must restore the account to the 4,000 initial margin, so the required deposit is 2,200.
- ANo margin call is required
- B1,000
- C2,200Correct
- D3,000
Explanation
Day 1 loss = 1.50 × 1,000 = 1,500, so the balance is 2,500, which is below 3,000, so a call is triggered that restores the balance to 4,000 (call of 1,500). Assume that was met. Then day 2 loss = 0.70 × 1,000 = 700, so the balance is 3,300, above maintenance, so no call on day 2. The question asks about day 2 specifically, and with day 1 met the answer would be none; however, if no day 1 deposit were made, the balance would be 1,800 after day 2, requiring 2,200 to reach 4,000. Since the stem states no deposits, the day 2 balance is 4,000 − 2,200 = 1,800, and the call is 2,200.
Did you get it right without looking?
One question tells you little. A timed set on Futures Markets shows your real accuracy, how long you take and where you lose marks.
More Futures Markets questions
- 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 …
- A trader wants to sell a futures contract currently quoted at 52.00, but only if the price first rises to 55.00, at which point she wishes t…
- A jet fuel buyer is worried that fuel prices will rise before a purchase planned for three months from now. Which futures position would hed…
- A trader holds a long position in a futures contract on a commodity that is physically settled. The exchange rules allow the short to choose…
- Which statement about delivery options held by the short in a futures contract on a Treasury bond or a similar commodity is correct?
- Which feature of a futures clearinghouse most directly limits the buildup of large unrealized losses that could lead to a counterparty defau…