FRM Part I · FRM Exam Part I · Futures Markets
A trader holds a long position in a futures contract and the clearing house marks it to market daily. On a given day the futures settlement price falls from 2,450 to 2,438 and the contract size is 50 units. What is the effect on the trader's margin account that day?
The margin account is debited by 600. The long position loses 12 index points per unit as the price falls from 2,450 to 2,438, and with a contract size of 50 the daily settlement loss is 12 times 50, or 600.
- AA credit of 600
- BA debit of 600Correct
- CA debit of 12
- DNo change, because gains and losses are realised only at delivery
Explanation
A long position loses when price falls. Loss = (2,450 - 2,438) x 50 = 12 x 50 = 600, debited from the margin account. The credit option has the wrong sign; the 12 option ignores contract size; and daily settlement means gains and losses are realised each day, not at delivery.
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
- Which statement about delivery options held by the short in a futures contract on a Treasury bond or a similar commodity is correct?
- A USD 20 million portfolio has a beta of 1.5 and is fully hedged to a beta of zero with index futures. Over the hedge period the index rises…
- A 90-day Eurodollar-style futures contract is quoted at 96.00, implying a 4% annualized rate on a $1,000,000 notional with each basis point …
- A trader holds a long position in a futures contract on a commodity. The trader does not want to take physical delivery and the contract is …
- A hedger with a long futures position wants an order that executes at the specified price or better, but he wants it cancelled if it cannot …
- A trader buys one crude oil futures contract covering 1,000 barrels at $80.00 per barrel. The initial margin is $6,000 and the maintenance m…