honeycfa

When a futures trader receives a margin call what must he or she do to bring the position up to the initial margin? The futures trader must:

A) deposit variation margin.

B) sell stock to cover the margin call.

C) deposit maintenance margin.

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When a futures trader receives a margin call, he/she must deposit variation margin to bring the account up to the initial margin value.

honeycfa

The money added to a margin account to bring the account back up to the required level is known as the:

A) daily settlement.

B) maintenance margin.

C) variation margin.

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The money added to a margin account to bring the account back up to the required level is known as the variation margin. The minimum allowed in the account is called the maintenance margin. The daily settlement process requires marking-to-market each day.

honeycfa

In the trading of futures contracts, the role of the clearinghouse is to:

A) guarantee that all obligations by traders, as set forth in the contract, will be honored.

B) stabilize the market price fluctuations of the underlying commodity.

C) maintain private insurance that can be used to provide funds if a trader defaults.

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The clearinghouse does not originate trades, it acts as the opposite party to all trades. In other words, it is the buyer to every seller and the seller to every buyer. This action guarantees that all obligations under the terms of the contract will be fulfilled.

honeycfa

Which of the following statements about futures margin is least accurate?

A) The initial margin on a contract approximately equals the maximum daily price fluctuation of the contract.

B) Initial margin must be posted to a futures account within three days after the first trade.

C) If the margin account balance falls below the maintenance margin level, the trader must bring the account back up to the initial margin level.

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Initial margin must be posted before trading.