(Currency Futures) On Monday morning, an investor takes a long position in a ste

Question

(Currency Futures) On Monday morning, an investor takes a long position in a sterling pound futures contract that matures on Wednesday afternoon. The initial margin bond is $3,250 and the maintenance margin requirement is $2,750. Whenever the account balance falls below the maintenance margin requirement, the broker will issue margin call. The agreed on price is $1.95 per for contract size of 62,500. At the close of trading on Monday, the futures price has risen to 51.96. At Tuesday close, the price drops to $1.94. At Wednesday close, the price falls to $1.955, and the contract matures. The investor takes physical delivery of the pounds at the prevailing price of $1.955. Please answer the following questions. a) Please fill out the detail daily settlement process in the corresponding blank.

Explanation / Answer

Answer:a)

Answer:b) Investor Profit (or loss)=312.5

Time Action Cash Flow Account Balance Monday open Investor buys a pound futures contract that matures in two days None. Price is $1.95 None Monday close Future Price rises to $1.96. Contract is marked-to-market. Investor receives [62500*($1.96-$1.95)]=$625 $625 Tuesday close Future price rises to $1.94. contract is marked-to-market. Investor pays [62500*($1.96-$1.94)]=$1250 ($625) Wednesday close Future price falls to $1.955.1) contract is marked-to-market. 1) Investor receive. [62500*($1.955-$1.94)]=$937.5 312.5 2) investor takes delivery of £62500. 2) Investor pays? $ to take the pound. [(62500*1.955)=122187.5

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