So there\'s two parts to this question. Once again I am attaching a solutions fr

Question

So there's two parts to this question.
Once again I am attaching a solutions from my notes which I think might be similar.

futures price at the time the buyer/seller opens a futures position and that a margin call is issued whenever the amount in a margin account falls below 3% of the futures contract's price. The recipient 4% of the futures contract's price. Suppose further that buyer and seller initially contract for a future purchase/sale of the underlying asset @ $108,000 but 2 days later the price of the futures contract has decreased to $105,000. 4pts a) Does anyone receive a margin call? If so, whom and for how much?

Explanation / Answer

Answer for 4)

A)

Both parties have to keep margin of 4% of initial future contract $108000*0.04=$4320

If the margin balance goes below $108000*0.03=$3024 then parties will receive a margin call

Now Price of future contract decreases from $108000-$105000=$3000

this will decrease buyer of future contract's marginal amount by $4320-$3000=$1320

Hence buyer needs to send $4320-$1320=$3000 to his margin account.

B)

If this margin call isnt respected then short position is bought by exhcnages and $1320 is sent to buyer

Kindly let me know if it helps.

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