Yesterday, you entered into a futures contract to sell €62,500 at $1.50 per €. Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted?
A)$1.5160 per €.
B)$1.208 per €.
C)$1.1920 per €.
D)$1.1840 per €.

Question

Quizplus · Accepted Answer

The settle price at which a demand for additional funds will be posted is the price at which the loss on the contract exceeds the maintenance level. The loss on the contract is calculated as the difference between the futures price and the contract price, multiplied by the number of contracts. In this case, the number of contracts is 62,500/1.50 = 41,666.67. The maintenance level is $500. Therefore, the settle price at which a demand for additional funds will be posted is the price at which the loss on the contract exceeds $500. The loss on the contract is calculated as follows:Loss = (Futures price - Contract price) * Number of contractsLoss = ($1.5160 - $1.50) * 41,666.67Loss = $666.67Since the loss on the contract exceeds the maintenance level, a demand for additional funds will be posted.

Yesterday, You Entered into a Futures Contract to Sell €62,500