Question

Assume today’s settlement price on a CME CAD futures contract is $0.8219/CAD. You have a short position on two contracts. Your performance bond account currently has a balance of $2,600. The next four days’ settlement prices are $0.8225, $0.8110, $0.8115 and $0.8105.

1. Calculate the change in your performance bond from daily marking-to-market. Show your work.
2. Calculate the balance of your performance bond account after the fourth day. Show your work.

Answer 1

The balance of the performance bond account after daily marking-to-market and four days of settlement price changes would be $4,880, reflecting the difference in gains and losses from the changes in futures contract prices.

Step-by-step explanation:

The change in the performance bond due to daily marking-to-market for a short position in two CAD futures contracts can be calculated by determining the difference in the settlement prices from day to day. The initial settlement price is $0.8219/CAD.

• Day 1: The settlement price is $0.8225/CAD. The change is ($0.8225 - $0.8219) per CAD, which for two contracts (each contract being 100,000 CAD) equals $120 loss. The performance bond decreases to $2,480.
• Day 2: The settlement price is $0.8110/CAD. The change is ($0.8110 - $0.8225) per CAD, which equals $2,300 gain. The performance bond increases to $4,780.
• Day 3: The settlement price is $0.8115/CAD. The change is ($0.8115 - $0.8110) per CAD, which equals $100 loss. The performance bond decreases to $4,680.
• Day 4: The settlement price is $0.8105/CAD. The change is ($0.8105 - $0.8115) per CAD, which equals $200 gain. The performance bond increases to $4,880.

After the fourth day, the balance of your performance bond account, taking into account the daily marking-to-market, would be $4,880.