The futures price of a metal is $250 an ounce. Futures contracts are for 100 ounces, and the margin requirement is $3,000 a contract. The maintenance market requirement is $1,500. A speculator expects the price to rise and enters into a contract to buy the metal. a. How much must the speculator initially remit? b. If the futures price rises to $255, what is the profit and return on the position? c. If the futures price declines to $2.48, what is the loss on the position? f. If the futures price declines to $2.34, what must the speculator do? e. If the futures price continues to decline to $2.32, how much does the speculator have in the account?
What will be an ideal response?
a. The initial margin requirement: $3,000?b. The profit: 100 x $5 = $500 The percentage return on the margin: $500/$3,000 = 16.7% c. The loss: 100 x $2 = $200?d. The loss: 100 x $16 = $1,600. The margin is reduced to $1,400, which is below the maintenance margin requirement. The speculator must remit an additional $1,600 to restore the original $3,000 margin requirement.?e. The total loss rises to $1,800, and the speculator has $2,800 in the account ($3,000 + $1,600 - $1,800).
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