There is a futures contract for the purchase of 1,000 bushels of corn at $3.00 per bushel. At the end of the day when the market price of corn falls to $2.50:
A) the buyer (long position) needs to transfer $500 to the seller (short position).
B) the seller (long position) needs to transfer $500 to the buyer (short position).
C) nothing happens since marked to market adjustments only occur if the market price rises above the contract price.
D) nothing happened since no funds are transferred until the settlement date.

Question

Quizplus · Accepted Answer

When the market price of corn falls to $2.50, the futures contract is "marked to market," and the buyer (long position) must transfer the difference in price ($0.50) multiplied by the contract size (1,000 bushels) to the seller (short position). Therefore, the buyer needs to transfer $500 to the seller.

There Is a Futures Contract for the Purchase of 1,000