Assume the following: (1) AAA takes a long position in 1 futures contract on Coffee; BBB...

  

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Assume the following: (1) AAA takes a long position in 1 futures contract on Coffee; BBB takes a short position in (the same) 1 futures contract. The futures contract is specified as follows: Contract size = 100 units (multiplier) Futures Price (at time 0) = $100 (2) Given the above information, the value of 1 futures contract is $10,000 (= $100 *100). (3) Assume that the Margin Account is 10% of the value of a futures contract: Initial Margin= 10%* $10,000 = $1000 The Margin Requirement is $1000 (This is also the Initial Margin). (4) Assume that the Maintenance Margin is 75% of the Initial Margin: Maintenance Margin = 75%*$1000 = $750 Instructions: Given the above information and assumption, calculate the changes in margin accounts of both AAA (long position) and BBB (the short position) for the scenario below. Identify any margin calls and calculate the variation margin (if there is a margin call) for AAA and/or BBB. Note: Present the summary tables and the diagrams of margin account of AAA and margin account of BBB respectively from time 0 to time 4. You may draw the margin diagrams and attach the pictures in your homework submission. Hint: Review the examples of margin account calculations, which are provided in the online recording of Class #4 and the document of "Week #4 In-Class Review Exercise: Calculations of Futures Margins" in Blackboard. See also the Class #3 and Class #4 presentations in Blackboard for further examples of margin account calculations. Note: assume that both AAA and BBB will meet all margin calls and both traders may close their positions at time 4. Time t Time 0 Time 1 Time 2 Time 3 Time 4 Futures Price (F₁) $100 $102 $95 $92 $100 Change in Dollar Value of One Futures Contract from time 1-1 to t (note: each contract has multiplier = 100) 0 = +$2*100=+$200 =-$7*100=-$700 =-$3*100=-$300 =+S8*100=+$800 Assume the following: (1) AAA takes a long position in 1 futures contract on Coffee; BBB takes a short position in (the same) 1 futures contract. The futures contract is specified as follows: Contract size = 100 units (multiplier) Futures Price (at time 0) = $100 (2) Given the above information, the value of 1 futures contract is $10,000 (= $100 *100). (3) Assume that the Margin Account is 10% of the value of a futures contract: Initial Margin= 10%* $10,000 = $1000 The Margin Requirement is $1000 (This is also the Initial Margin). (4) Assume that the Maintenance Margin is 75% of the Initial Margin: Maintenance Margin = 75%*$1000 = $750 Instructions: Given the above information and assumption, calculate the changes in margin accounts of both AAA (long position) and BBB (the short position) for the scenario below. Identify any margin calls and calculate the variation margin (if there is a margin call) for AAA and/or BBB. Note: Present the summary tables and the diagrams of margin account of AAA and margin account of BBB respectively from time 0 to time 4. You may draw the margin diagrams and attach the pictures in your homework submission. Hint: Review the examples of margin account calculations, which are provided in the online recording of Class #4 and the document of "Week #4 In-Class Review Exercise: Calculations of Futures Margins" in Blackboard. See also the Class #3 and Class #4 presentations in Blackboard for further examples of margin account calculations. Note: assume that both AAA and BBB will meet all margin calls and both traders may close their positions at time 4. Time t Time 0 Time 1 Time 2 Time 3 Time 4 Futures Price (F₁) $100 $102 $95 $92 $100 Change in Dollar Value of One Futures Contract from time 1-1 to t (note: each contract has multiplier = 100) 0 = +$2*100=+$200 =-$7*100=-$700 =-$3*100=-$300 =+S8*100=+$800

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Data given in question AAA take a Long Position of 1 future contract of Coffee BBB take a Long Short ... View the full answer