Computation of the future contracts and the margin money

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Reference no: EM1312590

A mining corporation expects to sell a large batch of silver in March 2010. However, because of uncertainty in prices, the corporation would like to lock in a price right now. The corporation will have 350 000 ounce of silver in March 2010. The future contracts traded on Chicago Board of Trade is for 5000 ounce of silver per contract. Both initial and maintenance margins are $2500 per contract. The current future price of silver deliverable in March is $14 per ounce. To hedge its position what should this company do? How many contracts should be bought or sold? How much money will be required for margin account? At what price this corporation can withdraw $25000 from its margin account?

Reference no: EM1312590

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