What is the amount that you must deposit

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The current futures price for cocoa is $2543 per metric ton. Suppose you expect the price of cocoa to fall and you enter a short position into one futures contract to sell cocoa. Assume that each cocoa contract is for 10 metric tons of cocoa, the initial margin requirement is 12% 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 this future contract?

(b) Suppose that the price of cocoa falls to $2500 per metric ton. What will happen to your margin account?

(c) Suppose that the price of cocoa rises to $2650 per metric ton. Will you receive a margin call? What if anything must you do with your account?

Reference no: EM132491140

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