Today's settlement price on a Chicago Mercantile Exchange (CME)yen futures contract is $0.8011/¥100.Your margin account currently has a balance of $2,000.The next three days' settlement prices are $0.8057/¥100,$0.7996/¥100,and $0.7985/¥100.(The contractual size of one CME yen contract is ¥12,500,000).If you have a short position in one futures contract,the changes in the margin account from daily marking-to-market will result in the balance of the margin account after the third day to be
A)$1,425.
B)$2,000.
C)$2,325.
D)$3,425.

Question

Quizplus · Accepted Answer

At the beginning of the trade, the margin account balance is $2,000.

On the first day, the futures price increased from $0.8011 to $0.8057, resulting in a loss for the short position. The loss per contract is calculated as follows:

Loss = (Settlement Price Today - Settlement Price Yesterday) x Contract Size
Loss = ($0.8057/¥100 - $0.8011/¥100) x ¥12,500,000
Loss = ¥57,500

To calculate the new balance of the margin account after the first day, we need to subtract the loss from the initial margin account balance:

New Balance = Initial Balance - Loss
New Balance = $2,000 - ¥57,500/$100
New Balance = $2,000 - $575
New Balance = $1,425

On the second day, the futures price decreased from $0.8057 to $0.7996, resulting in a gain for the short position. The gain per contract is calculated as follows:

Gain = (Settlement Price Yesterday - Settlement Price Today) x Contract Size
Gain = ($0.8057/¥100 - $0.7996/¥100) x ¥12,500,000
Gain = ¥75,000

To calculate the new balance of the margin account after the second day, we need to add the gain to the previous day's balance:

New Balance = Previous Day's Balance + Gain
New Balance = $1,425 + ¥75,000/$100
New Balance = $1,425 + $750
New Balance = $2,175

On the third day, the futures price decreased again, from $0.7996 to $0.7985, resulting in a further gain for the short position. The gain per contract is calculated as follows:

Gain = (Settlement Price Yesterday - Settlement Price Today) x Contract Size
Gain = ($0.7996/¥100 - $0.7985/¥100) x ¥12,500,000
Gain = ¥13,750

To calculate the new balance of the margin account after the third day, we need to add the gain to the previous day's balance:

New Balance = Previous Day's Balance + Gain
New Balance = $2,175 + ¥13,750/$100
New Balance = $2,175 + $137.5
New Balance = $2,312.50

However, the margin account must always maintain the initial margin requirement of $1,500 per contract. Since the balance of $2,312.50 is greater than the required margin of $1,500, the excess will be returned to the trader. Therefore, the final balance of the margin account after the third day is:

Final Balance = Required Margin + Excess Margin
Final Balance = $1,500 + ($2,312.50 - $1,500)
Final Balance = $1,500 + $812.50
Final Balance = $2,325

Therefore, the correct answer is choice C, $2,325.

Today's Settlement Price on a Chicago Mercantile Exchange (CME)yen Futures