The Purpose of a Margin Account for a Futures Contract

question 10

Multiple Choice

The purpose of a margin account for a futures contract is to:

• A)Guarantee a minimum margin of profit for the contract holder
• B)Allow futures traders to have more than one contract at once
• C)Provide a cushion for the exchange against defaults on the contract
• D)Hold interest payments until expiration

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Definitions:

Wages

Payments made to workers for their labor, usually calculated on an hourly, daily, or piecework basis.

Salaries

Salaries refer to the regular payments made by employers to employees, typically on a monthly or bi-weekly basis, in exchange for their labor or services.

Shutting Down

A short-term decision by a firm to cease production due to market conditions, typically when revenue does not cover variable costs.

Fixed Costs

These are business expenses that remain constant regardless of the level of goods or services produced, such as rent, salaries, and insurance premiums.