Answer: $0

The correct answer is **B: $0**. ### Detailed Step-by-Step Solution (FRM Part 1 Style): 1. **Calculate the contract size and confirm number of contracts** (given, but for completeness): Futures index level = 1,000 Multiplier = 250 **Value per contract** = 1,000 × 250 = **$250,000** Cash to equitize = $15,000,000 Contracts needed = 15,000,000 ÷ 250,000 = **60 contracts** (long position). 2. **Initial margin posted**: Initial margin per contract = **$12,500** Total initial margin = 60 × 12,500 = **$750,000** (This is deposited when the position is opened.) 3. **Maintenance margin requirement**: Maintenance margin per contract = **$10,000** Total maintenance margin = 60 × 10,000 = **$600,000** 4. **Mark-to-market at end of Day 1**: New futures index level = **995** Loss per point = $250 (the multiplier) Loss per contract = (1,000 – 995) × 250 = **5 × 250 = $1,250** Total loss on 60 contracts = 60 × 1,250 = **$75,000** 5. **Margin account balance after daily settlement**: Starting balance = $750,000 Minus daily loss (variation margin settlement) = –$75,000 **New balance = $675,000** 6. **Check against maintenance margin**: $675,000 **> $600,000** (still well above the maintenance level). → **No margin call** is issued. ### Key FRM Concept: Variation Margin vs. Margin Call - **Daily variation margin** (or settlement variation) is always calculated and settled via mark-to-market. The losing party (here, the long) pays the $75,000 loss to the clearinghouse, which is debited directly from the margin account. - However, the phrase **“variation margin does the portfolio manager have to advance”** in FRM-style questions typically refers to the **additional funds the manager must deposit** (i.e., the margin call amount) when the account equity falls **below** the maintenance margin. In this case, because the balance remains **above** maintenance margin after the loss, **no additional cash needs to be advanced**. The $75,000 is simply deducted from the existing margin account, and the position can continue without further action. - If the balance had fallen **below** $600,000, the manager would receive a margin call and would have to deposit enough variation margin to restore the account **back to the initial margin level** ($750,000). ### Why the Other Options Are Incorrect: - **A: $30,000** — No basis (perhaps a miscalculation of something like half the loss or wrong multiplier). - **C: $300,000** — Far too large; no relation to the numbers. - **D: $75,000** — This is the **daily mark-to-market loss**, but it does **not** require an additional deposit (“advance”) because the account stays above maintenance. This question tests understanding of **futures margin mechanics** (daily settlement + margin call trigger), a core topic in the **Financial Markets and Products** reading of FRM Part 1. The wording “have to advance” is the key trick — it implies an **out-of-pocket additional payment**, which is only required on a margin call. **Final Answer: B: $0**