1. On 25 April 2003 a trader bought three Australian dollar futures contracts at
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Question
1. On 25 April 2003 a trader bought three Australian dollar futures contracts at 0.5400 (USD/AUD). Calculate the US dollar value of the three contracts, where the size of the Australian dollar futures contract is AUD 100,000. Assuming no daily price limit and no maintenance margin, calculate the value of the three Australian dollar futures contract and daily variations in the margin account as the settlement rate assumes the following values: 10 26 April 0.5600 27 April 0.5730 28 April 0.5430 29 April 0.5580 Date Settlement rate Value Margin account 25-Apr 0.540 26-Apr 0.560 27-Apr 0.573 28-Apr 0.543 29-Apr 0.558Explanation / Answer
The Margin on a futures account is the amount required to take a position in the futures market.Margin Accounts invole daily settlement of gain or loss on futures/options/other financial derivatives at the day end settlement rate. If the holder of the derivative(s) gains money then the same is credited (given) to his/her account. If the holder losses money on the derivative(s) position then the same is debited (taken away) from his/ her account. Account in this case is the margin account. Also many Derivative Margin Accounts have minimum maintenance margin say $1000 which in turn is a fixed % of the margin on the derivative value bought. If the loss in derivative position on a particular day is such that the mainetnance margin goes below $1000 then the investor has to cover up for that loss. In case of a gain the margin amount of $1000 increases by the amount of the daily gain.In this question there is no minimum maintenance margin and hence only the gain or loss would be settled.
ASSUMPTION: Since no margin requirement is specified we will assume the entire price paid for the three futures contract is the initial margin requirement. The daily price variations would change the value of this initial purchase margin (price) and be reflected in the margin account.The variation in the margin account can be calculated by subtracting the day end value from the previous day's end value.
Contract Size of one Australina Future = 100000 AUD
Purchase Value of 3 Australian Futures = 3 x100000 = 300000 AUD
All figures are in USD. Month is April.
NOTE: No futures account should ideally have the entire purchase value as the margin requirement. If that were the case it would be impossible to make inflated profits through speculative position in futures.
Date Settlement Price (Exchange Rate) Day Beginning Value Day Ending Value Variation in Margin Account Value 25th 0.54 NA 300000 x 0.54 = 162000 26th 0.56 162000 300000 x 0.56 = 168000 168000 -162000 = 6000 27th 0.573 168000 300000 x 0.573 =171900 171900 - 168000 = 3900 28th 0.543 171900 300000 x 0.543 = 162900 162900 - 171900 = -9000 29th 0.558 162900 300000 x 0.558 = 167400 167400 - 162900 = 4500Related Questions
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