Reading 69: Futures Markets and Contracts- LOSb(part 2)～

through, initial, position, variation, buyer

LOS b, (Part 2): Define initial margin, maintenance margin, variation margin, and settlement price.

Q1. The initiation of a futures position:

A) is done through a bank or other large financial institution acting as a dealer.

B) requires both a buyer and a seller.

C) is at a price negotiated between the buyer and seller.

Q2. Which of the following statements regarding a futures trade of a deliverable contract is FALSE?

A) The long is obligated to purchase the asset.

B) The price is determined by open outcry.

C) Equilibrium futures price is known only at the end of the trading day.

Q3. The settlement price for a futures contract is:

A) the price of the last trade of a futures contract at the end of the trading day.

B) an average of the trade prices during the ‘closing period’.

C) the price of the asset in the future for all trades made in the same day.

Q4. If the margin balance in a futures account with a long position goes below the maintenance margin amount:

A) a deposit is required to return the account margin to the initial margin level.

B) a margin deposit equal to the maintenance margin is required within two business days.

C) a deposit is required which will bring the account to the maintenance margin level.

Q5. If the balance in a trader’s account falls below the maintenance margin level, the trader will have to deposit additional funds into the account. The additional funds required is called the:

A) margin call.

B) variation margin.

C) initial margin.

Q6. It is April 15, and a trader is entered into a short position in two soybean meal futures contracts. The contracts expire on August 15, and call for the delivery of 100 tons of soybean meal each. Further, because this is a futures position, it requires the posting of a $3,000 initial margin and a $1,500 maintenance margin per contract. For simplicity, however, assume that the account is marked to market on a monthly basis. Assume the following represent the contract delivery prices (in dollars per ton) that prevail on each settlement date:

April 15 (initiation)	173.00
May 15	179.75
June 15	189.00
July 15	182.50
August 15 (delivery)	174.25

What is the equity value of the margin account on the May 15 settlement date, including any additional equity that is required to meet a margin call?

A) $1,350.

B) $4,650.

C) $2,300.

Q7. Based on the May 15 settlement date, which of the following is most accurate?

A) Since the equity value of the margin account is above the initial margin, the trader can withdraw $1,350.

B) Since the equity value of the margin account is below the maintenance margin, a variation margin is called to restore the equity value of the account to it's initial level.

C) No margin call or disbursement occurs.

Q8. 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) sell stock to cover the margin call.

B) deposit maintenance margin.

C) deposit variation margin.

Q9. 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) variation margin.

C) maintenance margin.

Q10. 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.