Question

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. 72 B. 74 C. 78 D. 76

Answer 1

A. 72

Step-by-step explanation:

This can be calculated as follows:

Maintenance margin - Initial margin = $3,000 - $4,000 = $1,000 loss

Based on the above, we can have the following equation:

1,000 = 50,000 (b - 0.7) ........................... (1)

Where b is the futures price per unit above which there will be a margin call.

Solving equation (1) and making b the subject of the formula, we have:

b - 0.7 = 1,000/50,000

b - 0.7 = 0.02

b = 0.02 + 0.7 = 0.72

Multiply by 100, we have:

b = 0.72 × 100 = $72

Therefore, the futures price per unit above which there will be a margin call is $72.