Question

at the end of one day a clearing house member is long 100 contracts, and the settlement price is $50,000 per contract. the original margin is $2,000 per contract. on the following day the member becomes responsible for clearing an additional 30 long contracts, entered into at a price of $51,000 per contract. the settlement price at the end of this day is $50,500. how much does the member have to add to its margin account with the exchange clearing house?

Answer 1

To calculate the change in margin requirement, subtract the original margin requirement from the new margin requirement. In this case, the member will receive a refund of $140,000.

Step-by-step explanation:

To calculate how much the member has to add to its margin account, we need to determine the change in margin requirement.

Initially, the member is long 100 contracts with a settlement price of $50,000 per contract. The original margin is $2,000 per contract, so the total initial margin is $200,000 (100 contracts * $2,000 per contract).

On the following day, the member becomes responsible for clearing an additional 30 long contracts at a price of $51,000 per contract. The total additional margin requirement for these contracts is $60,000 (30 contracts * $2,000 per contract).

The next day, the settlement price is $50,500 per contract. To calculate the change in margin requirement, we need to subtract the original margin requirement from the new margin requirement: $60,000 (additional margin requirement) - $200,000 (original margin requirement) = -$140,000.

Since the change in margin requirement is negative, the member will receive a refund of $140,000 from its margin account with the exchange clearing house.