Question

5. (5 pts) Consider a 125,000 euro futures contract in which the current future price is $1.232 per euro. The initial margin requirement is $2,310 per contract, and the maintenance margin requirement is $2,100 per contract. You go short 10 contracts and meet all margin calls but do not withdraw any excess margin. Assume that on the first day, the contract is established at the settlement price, so there is no mark-to-market gain or loss on that day.

Day	Required Deposit	Beg. Balance	Settle Price	Daily Change	Gain/Loss	Ending Balance
0 (Purchase)			1.232
1			1.238
2			1.250
3			1.245
4			1.232

b. How much are your total gains or losses by the end of day 4?

Answer 1

Daily change on any given day= Settlement price for that day- Settlement price of previous day.

Gain/Loss isDaily change on that day * 125000 which is no of euros in the contract

For Ex on Day 2, daily change= (1.250-1.238)= +0.012. Gain/Loss= +0.012*125000=1500$

Daily change and gain/loss have been updated in the table below.

Total gains or loss by the end of day 4 is addition of gains and losses on all days==> 750+1500-625-1625= 0

Since on day 4 end, settlement price is 1.232 which is same as purchase price on Day 0, therefore overall there is no profit no loss by the end of day 4.

day	Required Deposit	Beg. Balance	Settle Price	Daily Change	Gain/Loss	Ending Balance
0 (Purchase)			1.232
1			1.238	(1.238-1.232)= +0.006	+0.006*125000=750
2			1.250	(1.250-1.238)=0.012	+0.012*125000=1500
3			1.245	(1.245-1.250)= -0.005	-0.005*125000=-625
4			1.232	(1.232-1.245)=-0.013	-0.013*125000=-1625