Find the nominal contract value

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Reference no: EM133120025

Assume you are a small oil refinery that buys crude oil in US dollars. Assume the refinery takes a futures position on six (6) March NYMEX (www.nymex.com) crude oil contracts(Light Sweet Crude Oil) to hedge their price risk. The futures contract price is opened at 45.00/barrel and assume this was also the settle price for that day (i.e. day 1).

Below are the following daily closes (i.e. settle) that occurred for the three consecutive days following the day the business opened their futures position. (All prices are in US $).

Day 2: $42.00/barrel

Day 3: $46.00/barrel

Day 4: $51.00/barrel

Briefly explain and show the transactions that occur in the margin account over these 4 days (i.e. marking to market, margin calls etc). Please be specific with the numbers and the position (buy/long or sell/short) taken on day 1. Assume that initial margin was set at 8% of nominal contract value on day one. Maintenance was set at 5% of nominal contract value on day 1.

Reference no: EM133120025

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