Answer to Question #178854 in Economics for Zed

Question

Suppose that Mr. Binda buys a three-month 5,000 contracts to buy commodity-X* at a futures

price of S1,000 from Mr. John. The contract requires an initial margin of $70 per contract and

maintenance margin of S40 per contract.

Required:

a) Compute the initial margin that both Mr. Binda must deposit to the clearinghouse.

b) Compute the maintenance margin that both Mr. Binda must deposit to the clearinghouse.

Answer 1

a) The initial margin that both Mr. Binda must deposit to the clearinghouse is 70×5,000 = $350,000.

b) The maintenance margin that both Mr. Binda must deposit to the clearinghouse is 40×5,000 = $200,000.