Question#76 -PRM exam1 – maintenance margin

[Anonymous]

Hi,

Question 76 – The fund manager buys a gold futures contract at 1000$, each contract being worth 100 ounces of gold. Initial margin is 8%, maintenance margin is 7%. Prices fall to 975$. What is the margin call the fund manager faces in respect of daily variation margin.

The Correct Answer selected is 1,500.

But according to the text (book 3) on the Futures margin, Once the value is below the maintenance margin, the deposit has to be brought back to the original margin with should be 8% * 1000* 100 = 8000$. and that makes the difference of 2,500$.

Kindly correct my understanding if i am missing a point here.

Regards,
Harsha

[Anonymous]

You are right, answer is 2500. Loosing party must make a margin deposit to replenish net equity to at least the original(initial) margin level, PRM handbook I.C.6.5.3 Clearing Houses

[Author]

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