Question

a)What is marking-to-market?

(7 marks)

b)Use the following data for gold and platinum futures (where prices are in dollars per troy ounce and margin account balances do not earn any interest) to answer the questions that follow:

Trading

June Gold Futures

April Platinum Futures

Date

100 troy oz. per contract

50 troy oz. per contract

Jan 20

1,594.50

1,874.50

Jan 21

1,592.40

1,878.50

Jan 22

1,597.70

1,883.10

Suppose that you go short two contracts of April platinum futures on January 20 and long three contracts of June gold on January 21. How many has the value of your portfolio at the closing of January 22 changed by?

(8 marks)

c) You sell three December gold futures contracts when the futures price is $410 per ounce. Each contract is on 100 ounces of gold and the initial margin per contract is $2,000. The maintenance margin per contract is $1,500. During the next seven days the futures price rises slowly to $412 per ounce. What is the balance of your margin account at the end of the seven days?

(10 marks)

BE332-6-AU/2 Section A There are two questions in Section A. Candidates must answer both questions. Always show your work fully. QUESTION ONE a) What is marking-to-market? (7 marks) b) Use the following data for gold and platinum futures (where prices are in dollars per troy ounce and margin account balances do not carn any interest) to answer the questions that follow: Trading June Gold Futures April Platinum Futures Date 100 troy oz. per contract 50 troy oz. per contract Jan 20 1,594.50 1,874.50 Jan 21 1,592.40 1,878.50 Jan 22 1,597.70 1,883.10 Suppose that you go short two contracts of April platinum futures on January 20 and long three contracts of June gold on January 21. How many has the value of your portfolio at the closing of January 22 changed by? (8 marks) c) You sell three December gold futures contracts when the futures price is $410 per ounce. Each contract is on 100 ounces of gold and the initial margin per contract is $2,000. The maintenance margin per contract is $1,500. During the next seven days the futures price rises slowly to $412 per ounce. What is the balance of your margin account at the end of the seven days? (10 marks) (Total: 25 marks) END OF QUESTION ONE