Solution-What is meant by variation margin

What is meant by variation margin

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Reference no: EM133115797

The December 2022 S&P 500 cash index is 3980 while the S&P 500 futures index is 4000 and the contract value of each index point on the futures is $100. You are convinced the cash index will rise 10% by expiry. You are only prepared to buy or sell one futures contract.

(i) Will you buy or sell a contract in the futures market?

(ii) What is your profit (+) in dollars if you are correct? Show your calculations.

(iii) What is your profit (+)/loss (-) if the cash index on expiration is 4200? Show your calculations.

(iv) What is your profit (+)/loss (-) if the cash index on expiration is 3500? Show your calculations.

(v) Explain what is meant by "variation" margin on a futures contract.

Reference no: EM133115797

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What is meant by variation margin

Reference no: EM133115797

Reference no: EM133115797

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