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FRM Part I · FRM Exam Part I · Futures Markets

An investor is long 5 crude oil futures contracts of 1,000 barrels each, entered at USD 80.00 per barrel. Initial margin is USD 4,000 per contract and maintenance margin is USD 3,000 per contract. The margin account starts at the initial level. Settlement prices on days 1 and 2 are USD 79.40 and USD 78.70. Assuming no withdrawals, what variation margin must the investor deposit after day 2 to restore the account to the initial margin level?

The investor must deposit USD 6,500. Cumulative losses on 5,000 barrels are USD 1.30 each, leaving USD 13,500 against a USD 15,000 maintenance requirement. Because a margin call is triggered, the account must be restored to the initial USD 20,000 level, not merely to maintenance.

  1. AUSD 3,500
  2. BUSD 6,500Correct
  3. CUSD 5,000
  4. DNo margin call is made

Explanation

Total loss = 5,000 barrels x (80.00 - 78.70) = USD 6,500. Day 1 loss 3,000 gives 17,000, above 15,000 maintenance. Day 2 loss 3,500 gives 13,500, below 15,000 maintenance. The call restores the account to 20,000, so the deposit is 6,500 (not just the amount to reach maintenance, 1,500, or only day 2's loss of 3,500).

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