burning0spear

Which of the following statements best describes marking-to-market of a futures contract? At the:

A) conclusion of each trade, the gains or losses from all previous trades in the futures contract are tallied.

B) end of the day, the gains or losses are tallied to the trader's account.

C) end of the day, the maintenance margin is increased for traders who lost and decreased for traders who gained.

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Marking-to-market means that, at the end of the day, all gains or losses are tallied to the trader’s account.

burning0spear

A futures account is marked to market:

A) only when margin falls below the maintenance margin level.

B) weekly.

C) daily.

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Margin balances are marked to market (adjusted) daily based on the change in settlement price from the previous day.

burning0spear

The practice of adjusting the margin balance in a futures account for the daily change in the futures price is called:

A) settling up.

B) marking to market.

C) a margin call.

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Marking to market is the practice of adding to or subtracting from the margin balance to adjust for the daily change in the contract value.

burning0spear

Which of the following statements regarding the mark to market of a futures account is least accurate? Marking to market of a futures account:

A) is only done when the settlement price is below the maintenance price.

B) may result in a margin balance above the initial margin amount.

C) may be done more often than daily.

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Futures accounts are marked to market daily based on the new settlement price, which can result in either an addition to or subtraction from the previous margin balance. Under extraordinary circumstances (volatility) the mark to market can be required more frequently. Once the margin is marked to market, the contract is effectively a futures contract at the new settlement price.

burning0spear

An investor bought a futures contract covering 100,000 Mexican Pesos at 0.08196 and deposited margin of $320. The following day the contract settlement price was 0.08201. The new margin balance in the account is:

A) $320.

B) $314.

C) $325.

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320 + 100,000(0.08201 − 0.08196) = $325

burning0spear

An investor sold ten March stock index futures contracts. The multiplier on the contract is 250. At yesterday’s settlement price of 998.40 the margin balance in the account was computed as $86,450. Today the index future had a settlement price of 1000.20. The new margin amount is:

A) $81,950.

B) $90,950.

C) $86,900.

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86,450 − 10 × 250 × (1000.2 − 998.4) = $81,950

burning0spear

A trader is long four July gold futures contracts, each with a contract size of 300 oz. If the price of July gold increases from $380.20 to $381.00 per ounce the change in the margin balance will be:

A) $240.

B) $960.

C) -$960.

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4 × 300 × (381 – 380.20) = $960

burning0spear

A trader has a long position in a wheat contract.

• The initial margin is $5,000.
• The maintenance margin is $3,750.
• There are 5,000 bushels in each wheat contract.
• On July 10, the price is $2.00 per bushel.

What is the price at which the trader will receive a maintenance margin call?

A) $2.25.

B) $1.90.

C) $1.75.

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The trader would have to lose $1,250, or 5,000 − 3,750 before they get a margin call. 5,000(2.00 − P) = 1,250. P = $1.75.

burning0spear

Most deliverable futures contracts are settled by:

A) delivery of the asset at contract expiration.

B) an offsetting trade.

C) a cash payment at expiration.

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Most futures positions are closed out by an offsetting trade at some point during life of the contract.

burning0spear

An offsetting trade is used to:

A) close out a futures position prior to expiration.

B) fully hedge a risk arising in the normal course of business activity.

C) partially hedge the interest rate risk of a bond position.

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An offsetting/reversing trade is used to close out a futures position prior to expiration.