Calculate when how much is the margin call given the

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Unformatted text preview: t futures price is $400 per ounce. Assume initial margin is 5% of underlying assets. Calculate the balance in the margin account assuming prices move to: A) $397 B) $403 Margins Margins ­ Example 1 Initial Margin = 2 x 100 x $400 x 5% = $4,000 A) Prices move down to $397 Loss to Investor = 2 x 100 x $3 = $600 Margin account balance = $4,000 ­ $600 = $3,400 B) Prices move up to $403 Gain to Investor = 2 x 100 x $3 = $600 Margin account balance = $4,000 + $600 = $4,600 Margins Margins ­ Example 2 Assume investor buys 2 gold contracts (100 ounce per contract), initial margin is 5% of underlying assets, maintenance margin is 75% of initial margin. Calculate when & how much is the margin call given the prices in the table on the next slide. Margins Margins ­ Example 2 Day Futures Price ($) Day of purchase 400.00 1 397.00 2 396.10 3 398.20 4 397.10 5 396.70 6 395.40 7 393.30 8 393.60 Margins Margins ­ Example 2 Day Futures Price ($) Daily Gain/ (Loss) Cumulative Gain/(Loss) Margin Account Balance ($) 4,000 400.00 1 397.00 (600) (600) 3,400 2 396.10 (180) (780) 3,220 3 398.20 420 (360) 3,640 4 397.10 (220) (580) 3,420 5 396.70 (80) (660) 3,340 6 395.40 (260) (920) 3,080 7 393.30 (420) (1,340) 2,660 8 393.60 60 (1,280) 4,060 Margin Call ($) 1,340 Newspaper Quotes Newspaper Quotes Opening price ­ Price that is traded immediately the exchange is opened. High/Low price – Highest/Lowest price achieved in trading during a day. Settlement price – The price that is traded immediately before the signal of the end of the trading day. – Important number used for marking to market. Newspaper Quotes Newspaper Quotes Change in settlement price – Change in settlement price from the previous day Lifetime High/Low price – Highest/Lowest price achieved in the trading of a futures contract Open Interest – Total number of contracts outstanding at the end of the day, usually 1 day old information. Volume of Trading – Estimated volume traded for the day – Actual volume traded for the previous day Newspaper Quotes Newspaper Quotes ­ The Wall Street Journal Forwards Forwards Similar to futures in that they are agreements to buy or sell an asset at a certain t...
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