Question

A company enters into a short futures contract to sell 5000 bushels of wheat for 450 cents per bushel. The initial margin is $ 3000 and the maintenance margin is $2000. What price change would lead to a margin call? Under what circumstances could 1,500 be with drawn from the margin account? Please provide formulas thank you

Answer 1

There would be margin call if company loses $1000 ($3,000-$2,000)
Calculate price at which there would be margin call
No of bushels*(Future Price - current price) = Loss on contract
5000*(-Future price + $4.50) = -$1,000
5000P - 18,000 = 1,000
5000P	19000
P	19000/5000
P	$3.80
Thus, there would be margin call if price falls to 380 cents ($3.80)
Calculate price at which $1,500 can be withdrawn
5000*(-Future price + $4.50) = $1,500
5000P - 18,000 = -1,500
5000P	16500
P	16500/5000
P	$3.30
$1,500 can be withdrawn if future value falls to 330 cents ($3.30)