Project Management & Execution Flashcards

Initial margin in a futures account is best described as:

Answer: A good-faith performance bond required to open a position

Futures margin is a performance bond, not a down payment, and no loan is involved.

A customer's equity falls below the maintenance margin level. What is the typical requirement?

Answer: Deposit funds to restore equity to the initial margin level

A variation margin call generally requires restoring the account to the initial margin level.

The clearinghouse adjusts accounts each day to reflect gains and losses based on the settlement price. This process is called:

Answer: Marking to market

Daily marking to market credits gains and debits losses based on the settlement price.

Compared with a speculator, a bona fide hedger's margin requirement is typically:

Answer: Lower

Exchanges commonly set lower margin rates for hedge accounts than for speculative accounts.

An investor is long one wheat contract (5,000 bushels). The price falls 10 cents per bushel. What is the loss?

Answer: $500

5,000 bushels × $0.10 = $500.

After a trade is matched, the clearinghouse becomes the buyer to every seller and the seller to every buyer. What is the main benefit?

Answer: It reduces counterparty credit risk

This substitution guarantees performance and removes direct counterparty risk between traders.

Which margin type is collected from a clearing member's customers to cover the day's adverse price moves?

Answer: Variation margin

Variation margin is the cash flow reflecting daily mark-to-market losses.