2. Assume today's settlement price on a CME EUR futures contract is $1.3140/EUR. You have a short position in one contract. Your performance bond account currently has a balance of $1,700. The next three days' settlement prices are $1.3126, $1.3133, and $1.3049. Calculate the changes in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day. (The contract size of one EUR contract is €125,000). What if you have a long position in the future contract?

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Business

Eduardo Ochoa

6 July, 06:38

2. Assume today's settlement price on a CME EUR futures contract is $1.3140/EUR. You have a short position in one contract. Your performance bond account currently has a balance of $1,700. The next three days' settlement prices are $1.3126, $1.3133, and $1.3049. Calculate the changes in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day. (The contract size of one EUR contract is €125,000). What if you have a long position in the future contract?

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Sage Jarvis · Answer 1

Consider the following explanation

Explanation:

Initial balance in account = $1700 and 125,000 EUR is the contractual size of one EUR at a price of $1.3140

Day1 : $1.3126 = Closing price. (1.3140-1.3126) (125,000) = $175; Current balance = 1700 + 175 = $1,875

Day2 : $1.3133 = Closing price. (1.3126 - 1.3133) (125,000) = $87.50. Current balance = 1875 - 87.50 = $1787.50 (Deduct in balance due to loss)

Day3 : $1.3049 = Closing price. (1.3133 - 1.3049) (125,000) = $1050. Current balance = 1787.50 + 1050 = $2837.50

Long position in future contract:

1700 + (1.3126-1.3140) + (1.3133-1.3126) + (1.3049-1.3133) * EUR 125,000 = $562.50

To bring back up to the initial performance bond level - we can experience a margin call requesting for additional funds be added to your performance bond account.