A company enters into a short futures contract to sell 50,000 units of a commodity for 70 cents per unit. The initial margin is $4,000 and the maintenance margin is $3,000
What is the futures price per unit above which there will be a margin call?
A. 78 cents
B. 76 cents
C. 74 cents
D. 72 cents
D
There will be a margin call when more than $1000 has been lost from the margin account so that the balance in the account is below the maintenance margin level. Because the company is short, each one cent rise in the price leads to a loss or 0.01×50,000 or $500 . A greater than 2 cent rise in the futures price will therefore lead to a margin call. The futures price is currently 70 cents. When the price rises above 72 cents there will be a margin call.
You might also like to view...
Baldwin Welding and Steel Fabrication decided that their market was the greater Baldwin, Illinois area. They have used ________________ segmentation.
a. Geographic b. Demographic c. Benefits sought d. It's impossible to tell from this example
Ace Corporation engaged Kosier, CPA, to perform a consulting engagement. While driving to Ace's office, Kosier was involved in an automobile accident in which Norton was injured. The accident was solely Kosier's fault. If Norton sues both Ace and Kosier for the injuries Norton sustained, what will be the result?
A. Both Kosier and Ace will be liable. B. Kosier will be liable, and Ace will not be liable because Kosier is an independent contractor. C. Ace will be liable under the principle of respondeat superior, and Kosier will not be liable. D. Ace will be liable because of Kosier's actual authority, and Kosier will not be liable.