Date of contract Close out date (maturity 4 September 2015 date) Contract price Size of contract The initial margin Maintenance margin R975 per ounce 10 futures contract, each contract represents 100 troy 1st September 2015 2nd September 2015 3rd September 2015 4th September 2015 ounces R12,000 per contract | R11,200 per contract Over the four trading days, the gold prices were as follows Date Spot price R964 R960 R970 R980
Date of contract Close out date (maturity 4 September 2015 date) Contract price Size of contract The initial margin Maintenance margin R975 per ounce 10 futures contract, each contract represents 100 troy 1st September 2015 2nd September 2015 3rd September 2015 4th September 2015 ounces R12,000 per contract | R11,200 per contract Over the four trading days, the gold prices were as follows Date Spot price R964 R960 R970 R980
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:act. The detalls of the contract are given below
Date of contract
1 September 2015
Close out date (maturity 4 September 2015
date)
Contract price
Size of contract
R975 per ounce
10 futures contract, each contract represents 100 troy
ounces
The initial margin
Maintenance margin
R12,000 per contract
RI1,200 per contract
Over the four trading days, the gold prices were as follows
Date
Spot price
1* September 2015
2nd September 2015
R964
R960
3rd September 2015
R970
4th September 2015
R980
Required
1. Explain whether Chill Ltd is buying or selling futures as a hedge.
2. Demonstrate the concept of marking to market using the 10 gold futures. Do that for the
buyer and the seller. Clearly show the balance in the margin account at the end of each of
the four trading days.
3. Under what circumstances is (a) a short hedge and (b) a long hedge appropriate?
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