QUESTION 6 Suppose you enter into a short position to sell March Gold for $255 p

Question

QUESTION 6 Suppose you enter into a short position to sell March Gold for $255 per ounce. The contract size is 100 ounces, the initial margin is $2550 and the maintenance margin is $1020. At what price will you receive a margin call?

a. 254.93 b. 270.3 c. 255.07 d. 239.7

12 points QUESTION 7 Suppose that on October 24 you buy 12 March gold futures contracts for $250 per ounce. At 11:00 am on October 25 you buy 10 more contracts for $245.5 ounce. At the close of trading on October 25, gold futures settle for $239.0 ounce. If the contract size is 100 ounces and the initial margin equals 2500, how much do you gain or lose as of the close?

a. -6700.0 b. -19700.0 c. 19700.0 d. 6700.0 12

QUESTION 8 Suppose that on October 24 you Sell 8 March gold futures contracts for $345 per ounce. At 11:00 am on October 25 you buy 5 March contracts for $347.0 ounce. At the close of trading on October 25, gold futures settle for $348.0 ounce. If the contract size is 100 ounces and the initial margin equals 3450, how much do you gain or lose as of the close?

a. -1900.0 b. 1900.0 c. 100.0 d. -100.0

Explanation / Answer

a. As the position is short, you will make profits when price goes down and will make losses when price goes up. So, you will receive a margin call at a price, which is higher than $255. Hence, Option b. $270.3 is correct.

b. Value of Gold purchased on October 24 = $250 x 12 x 100 = $300,000
Value of Gold purchased on October 25 = $245.5 x 10 x 100 = $ 245,500

Average Price = ($300,000 + $245,500)/(22*100) = $247.9545

Loss per Contract = $247.9545 - $239 = $8.9545

Total Loss = $8.9545 x 22 x 100 = $19,700

So, Option B is correct.

c. Value of Short Position = $345 x 100 x 8 = $ 276,000
Value of Long Position = $347 x 100 x 5 = $173,500

Current Value per contract = ($276,000 - $173,500)/(3*100) = $341.6667

Net loss = ($341.6667 - $348) x 3 x 100 = -$1,900

So, Option A is correct.

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