Derivative and Fixed Income Securities - Question 1
Part I
Initial margin requirement= 60000 x 15.29 x 10% X 2 cents + $ 1200
= $ 3,035
Loan from broker = 60000 x 15.29 x 2 cents x 90%
= $ 16,513
Margin call= 16,513/1-0.10= $ 18,347
Hence, price at which margin call will be recd= 18,347*100/(60,000*2)= 15.28 cents
Part II
Higher the volatility, higher the futures price. Hence, the initial margin requirement will a…
Part C
Question C1
Future contracts are most common technique applied to hedge risk. The main objective of any company or investor is to use the future contract for minimize their risk exposure and restrict themselves from any changes in the price of underlying security. In other words, it can be said that investors by using the future contract offset their risk associated with security.Hedging and speculation are two different aspects. Fut…
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