Use the futures market to hedge price risk

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Mike's company must pay for 21,000 gallons of heating oil next week. He's decided to use the futures market to hedge price risk. The futures price for heating oil was $2.05 per gallon the day he entered into the contract. The contract size is 21,000 gallons. The initial margin is $6,075 and maintenance margin is $4,500. If the price of heating oil is $2.15 the day after Mike opened his position, what would be his ending margin balance for that day? Assume any deficits are eliminated to keep the position open.

Reference no: EM131918774

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