The "initial margin" on a futures contract:
A) is a cash deposit the buyer places with the seller as good faith money.
B) can be cash or U.S. government securities placed with an exchange member.
C) are U.S. government securities the buyer places with the seller for safekeeping.
D) are the first installment on the payment for a futures contract.
E) is the amount by which the futures contract is initially "in the money."

Question

Quizplus · Accepted Answer

The initial margin on a futures contract can be in the form of cash or U.S. government securities placed with an exchange member. The margin serves as a deposit to cover potential losses in the contract, and may be adjusted as the price of the underlying asset changes. Option A is incorrect because the margin is not placed with the seller, but with an exchange member. Option C is incorrect because the securities are not placed with the seller, but with the exchange member. Option D is incorrect because the initial margin is not a payment installment, but a deposit. Option E is also incorrect because the initial margin is not related to the current value of the contract.

The "Initial Margin" on a Futures Contract