Question

XYZ Inc. decides to use aluminum futures contracts to fully hedge a payment of 125 tons of aluminum that's due in four days. Each futures contract has 25 tons of aluminum attached and carries an initial and maintenance margin of $3400 and $2500, respectively. The futures price was $1625/ton the day XYZ opened its futures position. The table below shows the futures prices for the four days immediately after XYZ opened its position.

Day 1	Day 2	Day 3	Day 4
$1627	$1622	$1616	$1621

Find XYZ's ending margin balance on Day 2.  Assume deficits are eliminated to keep the position open and excesses remain in the account.

Answer 1

Given

Initial futures price = $1625/ton

Initial Margin = $3400 per contract

Total Initial Margin = $17,000 (i.e. 3400*5)

Maintenance Margin = $2500 per contract

Total Maintenance Margin = $12,500 (i.e. 2500 *5)

Day	Required Deposit	Price/ton	Daily Change	Gain/ Loss	Balance
0	$17,000	1625	0	0	17,000
1	0	1627	2	250 (i.e. 2*125)	17,250
2	0	1622	-5	-625 (i.e. -5*125)	16,625

Ending Margin Balance on Day 2 = $16,625