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Answer: $35 drop
A margin call occurs when the margin account falls below the maintenance margin. - Initial margin per contract = **$14,000** - Maintenance margin = **75% × $14,000 = $10,500** - Margin cushion per contract = **$14,000 − $10,500 = $3,500** Each futures contract is for **100 troy ounces**, so a **$35 per ounce** decline causes a loss of: - **$35 × 100 = $3,500 per contract** That is exactly the amount needed to reach the maintenance margin, so the futures price must drop by **$35 per ounce**. **Correct answer: A**
Author: Manit Arora
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Question-144.1 Futures margin requirements
Assume you enter into five (5) long futures contracts to buy July gold for $1,400 per ounce. A gold futures contract size is 100 troy ounces (see http://www.cmegroup.com/trading/metals/precious/gold_contract_specifications.html). The initial margin is $14,000 per contract, and the maintenance margin is 75% of the initial margin. What change in the futures price of gold will lead to a margin call?
A
$35 drop
B
$70 drop
C
$175 drop
D
$350 drop
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