CFA Practice Question
A futures contract is on 25,000 bushels of wheat. An investor went long in 5 contracts during the day when the futures price equaled 149 cents a bushel. The closing futures price equals 158 cents a bushel. The investor's margin account
A. will be debited $11,250.
B. will be credited $11,250.
C. will be credited $2,250.
Explanation: Futures are marked-to-market on a daily basis. This means that all gains are credited to the account and losses debited from the account at the end of the day. Since the investor is long the contract and the futures price has gone up by 9 cents a bushel, the investor gains. The total gain equals 25,000*5*0.09 = $11,250. This is the amount that will be credited to his account.
User Contributed Comments 4
| User | Comment |
|---|---|
| Dinosaur | If it wasn't a margin account would it be debited? |
| uviolet | since the closing price of is greater than the exercise price, the investor stands to gain. hence there is a credit to margin account (different from options margin) |
| mindi | it's as per the books of the clearinghouse. not the investor's book, hence credited. |
| manju79 | if we had our own book, it will be a debit entry. Clearing house is looking at us like a creditor in their books. |