FRM Part I · FRM Exam Part I · Futures Markets
A trader holds one long futures contract on 5,000 bushels of wheat bought at USD 6.00 per bushel. The day's settlement price is USD 6.20, and the trader closes the position the next day at USD 6.15 per bushel. What is the total profit over the two days, and how much of it was credited to the margin account on the first day?
Total profit is USD 750, with USD 1,000 credited on the first day. The first day's settlement price rise of USD 0.20 on 5,000 bushels gives USD 1,000. The next day's USD 0.05 fall costs USD 250, leaving USD 750 overall.
- ATotal USD 750; first day credit USD 1,000Correct
- BTotal USD 750; first day credit USD 750
- CTotal USD 1,000; first day credit USD 1,000
- DTotal USD 1,000; first day credit USD 750
Explanation
Day 1 gain = 0.20 x 5,000 = USD 1,000 credited via marking to market. Day 2 loss = 0.05 x 5,000 = USD 250. Total = 1,000 - 250 = USD 750, equal to (6.15 - 6.00) x 5,000.
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