Question

Your broker requires an initial margin of $6,075 per wheat futures contract and a maintenance margin of $4,500 per contract. Wheat futures contracts cover 5,000 bushels and are quoted in cents per bushel. You sold one wheat futures contract yesterday at the closing settlement price quote of 786. Today, the settlement quote is 808. Will you receive a margin call and if so, for what amount? All margin calls restore the margin level to its initial level. What price per bushel will trigger a margin call?

Answer 1

No margin call is required

the price per bushel to trigger margin call = 1102 cents per bushel

Step-by-step explanation:

The computation of given question is shown below:-

The Difference between the rates of futures = Settle Quote of present day - Closing Settlement Price Quote when future was sold

= 808 - 786

= 22

The margin on present day for future = quoted in cents × Difference between the rates of futures

The future is sold for 5000 bushels , this is quoted in cents that is $50

= 22 × 50

= 1,100

Current margin call = Initial margin - Price change

= $6,075 - 1,100

= $4,975

Therefore no margin call is required as the margin balance is exceeds the maintenance margin requirement.

maximum loss per contract before margin call = Initial margin - Maintenance Margin

= $6,075 - $4,500

= $1,575

Maximum price before margin call = 786 + (1,575 ÷ 5,000)

= 786 + 315

= 1101 cents

So, the price per bushel to trigger margin call = 1102 cents per bushel