Fred Has Just Sold Short 3 Contracts of May Wheat

question 64

Essay

Fred has just sold short 3 contracts of May wheat on the CBT. These are 5,000 bushel contracts. The initial deposit is $1,500 per contract with a maintenance margin of $1,200.
(a) What is Fred's total initial margin?
(b) How much of an increase in the price of wheat is necessary to cause a margin call?

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Definitions:

Fiduciary Duty

An obligation wherein an individual must act in the best interest of another person or entity, prioritizing their benefits over their own.

Serious Misconduct

Serious misconduct is a severe behavior or action by an employee that breaches workplace rules or standards to such an extent that it justifies immediate dismissal.

Maintenance of Membership

A union agreement clause requiring employees to maintain union membership for the duration of the employment contract.

Agency Shop

A workplace agreement where employees do not have to join the union, but must pay union dues since the union negotiates on behalf of all employees.