CFA Practice Question

CFA Practice Question

A trader enters into the long side of 1,000 Futures contracts each of which requires a margin of $5. The initial Futures price is $40. The maintenance margin is $3. At the end of the first day the settlement price is $39.75. At the end of the second day the settlement price falls to $35.95. What is the dollar margin at the beginning of the third day (assuming that any margin calls in needed have been made and the trader has paid the margin call)?
A. $5,950
B. $5,000
C. $950
Explanation: There will be a margin call at the end of the second day (not the first day) as the margin has fallen below the maintenance margin of $3 as there is a net loss of $4.05 per contract at the end of the second day ($40 - $35.95). The margin call will restore the margin to $5 per contract, thus restoring total margin to $5,000.

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