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CMA Final · Strategic Financial Management · Forwards and Futures

Sundaram Textiles holds a stock index futures position and the exchange fixes the initial margin at Rs 60,000 per contract and the maintenance margin at Rs 45,000 per contract. After a daily mark-to-market loss, the margin balance on one long contract falls to Rs 41,000. What amount must the member deposit to meet the margin call?

The margin call is Rs 19,000. Once the balance of Rs 41,000 falls below the maintenance margin of Rs 45,000, the holder must top the account back up to the initial margin of Rs 60,000, so the deposit is 60,000 minus 41,000.

  1. ARs 4,000
  2. BRs 19,000Correct
  3. CRs 15,000
  4. DRs 45,000

Explanation

When the balance falls below the maintenance margin, the account must be restored to the initial margin, not just to the maintenance level. Required deposit = 60,000 - 41,000 = Rs 19,000. Rs 4,000 is wrong because it only restores the maintenance level (45,000 - 41,000).

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