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:

Finished Goods

Products that have completed the manufacturing process but have not yet been sold or distributed to the end user.

Specialty Product

Item that a purchaser is willing to make a special effort to obtain.

Shopping Product

A type of product that consumers purchase after comparing quality, price, and style from several sellers, dedicating time and effort to ensure satisfaction.

Convenience Product

Everyday goods that are easily accessible, requiring minimal shopping effort, and are bought out of habit by consumers.