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FRM Part I · FRM Exam Part I · Futures Markets

Which statement about variation margin and daily settlement in an exchange-cleared futures market is correct?

Under daily settlement, losses are paid each day through the margin account and gains can be withdrawn only to the extent the balance exceeds the initial margin. Margin calls are triggered below maintenance margin and require restoring the account to initial margin.

  1. ALosses on a position are paid to the clearinghouse each day, and gains can be withdrawn only to the extent the balance exceeds the initial marginCorrect
  2. BA margin call is triggered whenever the account balance falls below the initial margin level
  3. CDaily settlement means the futures price is fixed at the original delivery price until expiry
  4. DA margin call must be met by topping up the account to the maintenance margin level only

Explanation

Daily settlement transfers gains and losses through the margin account. Excess over initial margin may be withdrawn. Calls are triggered below maintenance, not initial margin, and the deposit must restore the account to the initial margin level, not just maintenance.

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