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Answer: Member receives USD 250.
## Explanation With an automatic netting arrangement, the variation margin is calculated as the net difference between the variation margins on all positions. **Long September contract variation margin:** - Contract size: 5,000 bushels - Price change: Day 2 (4.95) - Day 1 (4.75) = +0.20 USD/bushel - Variation margin: 5,000 × 0.20 = +1,000 USD (member receives) **Short December contract variation margin:** - Contract size: 5,000 bushels - Price change: Day 2 (5.15) - Day 1 (5.00) = +0.15 USD/bushel - Since this is a short position, price increase results in a loss - Variation margin: 5,000 × (-0.15) = -750 USD (member pays) **Net variation margin:** +1,000 USD (from long) - 750 USD (from short) = +250 USD Therefore, the member receives USD 250. **Why other options are incorrect:** - **A (Member pays USD 750):** This only considers the short position variation margin - **B (Member neither pays nor receives):** This assumes positions perfectly offset each other - **D (Member receives USD 1,000):** This only considers the long position variation margin
Author: LeetQuiz .
A member of a commodity exchange holds positions in multiple corn futures contracts over several consecutive days. A corn futures contract represents 5,000 bushels. Information about the futures positions and daily settlement prices is given below:
| Position | Settlement price (in USD per bushel) |
|---|---|
| Day 1 | |
| Long September 1 corn contract | 4.75 |
| Short December 1 corn contract | 5.00 |
If the exchange has an automatic netting arrangement in place, what is the variation margin for the member at the end of day 2?
A
Member pays USD 750.
B
Member neither pays nor receives any USD.
C
Member receives USD 250.
D
Member receives USD 1,000.
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