Question

2.      Suppose the maintenance margin is $5 and initial margin is $10. A long trader trades 10 contract in the market. when the Day 2's ending balance is $40/ what should the trader do?

a.      Do nothing but keep trading in Day 3

b.      Deposit extra $10

c.      Deposit extra $60

d.      deposit extra $100

e.      None above

3.      Which of the following statement regarding clearing hours in futures market is wrong?

a.      Clearing house collects margin

b.      Clearing house allows the offsetting contracts before expiration

c.      Clearing house absorbs all the default risks

d.      There is only one clearing house in the exchange

e.      Long and shorts do not meet each other directly, but contract clearing house

4.      Suppose the 90 -day LIBOR=3%. At the expiration, which one of the following two derivative product offers higher amount at expiration? Suppose we have one forward and one futures, both with notional amount of $10,000,000

a.      Higher amount in the future market

b.      Higher amount in the forward market

c.      Same amount

d.      Cannot determine because lack of information

5.      Which one of the following is the not correct about the comparison between futures and forwards?

a.      Futures are standardized and forwards are not

b.      Futures are traded on exchange and forward are OTC

c.      Short in both forward and futures can determine the method of delivery

d.      Futures market have clearing house and forward does not

e.      Exiting the futures make is easier than forward

Answer 1

(2) Maintenance Margin = $ 5 and Initial Margin = $ 10, As the account value at the end of Day 2 is $ 40 which is greater than the Maintenance Margin of $ 40, the trader will do nothing and continue trading on Day 3. A margin call would have been received in case the maintenance margin would have gone below $ 5. In such a scenario a margin top up would have been required such that the margin goes back to the initial margin (and not maintenance margin).

Hence, the correct option is (a)

NOTE: Please raise separate queries for solutions to the remaining unrelated questions, as one query is restricted to the solution of only one complete question with up to four sub-parts.