Exercise 10 Answers

Exercise 10 Answers - not get a margin call. b. Let us say...

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ECON 423, Exercise 10 A speculator has $10000 in his trading account. He decides to buy November Crude Oil at $70 a barrel. The size of a Crude Oil futures contract is 1000 barrels and requires an initial margin of $9788 and has a maintenance margin of $7250. This trader can open up one Crude Oil futures position. a. Let us say that one day later, the price of November Crude Oil falls to $69. What is the balance in the margin account? Will the speculator get a margin call? The speculator has suffered an open position loss of $1000 and his account balance drops to $9000. No, he will
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Unformatted text preview: not get a margin call. b. Let us say that the two days later, the price of crude oil drops to $65.00. What is the balance in the margin account? Will the speculator get a margin call? The speculator has suffered an open position loss of $5000 and his account balance drops to $5000. Yes, he will get a margin call to increase the balance to the initial level of $9788 or quit his position. He can use the remaining balance for new trading....
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