Futures-margin and mark to market

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Futures, Margin and Mark to Market

The current price of gold is $1,800 an ounce, and the current futures price is 1,850 an ounce. Suppose you expect the price of gold to rise and you enter a long position into a future contract to buy gold. Assume that each gold contract is for 100 ounces of gold, the initial margin requirement is 10% and the maintenance margin is 5%.

(a) What is the amount that you must deposit (either in cash or in securities) into your margin account to open the future contract?

(b) Suppose that the price of the future contract increases by 1%. What will happen to your margin account?

(c) Suppose that the price of the future contract falls to $1750. What will happen to your margin account? What if anything must you do?

Reference no: EM13802241

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