The "Initial Margin" on a Futures Contract

question 14

Multiple Choice

The "initial margin" on a futures contract:

• A) is a cash deposit the buyer places with the seller as good faith money.
• B) can be cash or U.S. government securities placed with an exchange member.
• C) are U.S. government securities the buyer places with the seller for safekeeping.
• D) are the first installment on the payment for a futures contract.
• E) is the amount by which the futures contract is initially "in the money."

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Definitions:

Direct Labor

The work of factory employees that can be directly associated with converting raw materials into finished goods.

Product Cost

The total cost associated with producing or manufacturing a product, including materials, labor, and overhead.

Factory Overhead

All costs related to manufacturing that are not direct materials or direct labor expenses.

Cost Allocation

The process by which factory overhead or other costs are assigned to a cost object, such as a job.