An investor takes long position in five August Gold futures contract. Each contract size is 100...

An investor takes long position in five August Gold futures contract. Each contract size is 100 troy ounces. Futures price is $1356.20. Initial margin requirement is $3,500 per contract and the maintenance margin is $2,500 per contract. Find out at what price the margin call will take place? After the margin call, how much the investor will have to deposit in the margin account?

Solutions

Expert Solution

A)Maximum Loss that can be bear before a call is made is equal to [Initial margin- Maintenance margin] *number of contract

= [3500-2500]*5

= 1000*5

= 5000

Let the New price be x.

Maximum loss = [Future price -New price ]*number of contract* contract size

5000 = [1356.2 -x] *5 *100

5000 =[1356.2 -x] *500

5000/500 = 1356.2-x

10 = 1356.2 -x

x = 1356.2 -10

= $ 1346.20

Any price below $ 1346.2 will require a margin call .

b)After a margin call is made ,the Amount to deposit is equal to amount that will made the account again equals to initial margin.

jeff jeffy answered 1 year ago

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