Question

a) A company enters into a short futures contract to sell 5,000 bushels of wheat for 250 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. What price change would lead to a margin call?

b) How does the cost-of-carry argument for commodity futures differ from futures written on other classes on assets? How would you explain differences in the sign and magnitude of the basis across different classes of commodities?

Answer 1

				SALE IN FUTURES CONTRACT
						A	B=A*5000
		CALCULATION OF DAILY GAIN/(LOSS) PER BUSHEL		Contract Price per Bushel	Closing Future Price per Bushel	Daily Gain/(Loss) per Bushel	Daily Total Gain/(Loss)	Margin Account Balance	Maintenance Margin
				$2.50				$3,000	$2,000
		(2.5-2.6)			$2.6000	($0.1000)	($500.00)	$2,500	$2,000
		(2.6-2.7)			$2.7000	($0.1000)	($500.00)	$2,000	$2,000
		What price change would lead to a margin call?
		There will be Margin Call at Future Price per Bushel of 270 Cents
	b)	For Financial assets Cost of Carry is the interest cost
		For Commodities , Cost of Carry includes Cost of Storage