You are short of 6 December EURODOLLAR futures contracts at 99.50. Yesterday, the closing price was 99.35. Today's closing price is 99.105. What variation margin will be due?
A) You will have to pay USD 5,925.00
B) You will receive USD 5,925.00
C) You will have to pay USD 3,675.00
D) You will receive USD 3,675.00

Question

Quizplus · Accepted Answer

First, let's calculate the loss from yesterday's closing price to today's closing price:

Loss = (99.35 - 99.105) x 6 contracts x $250,000 per contract
Loss = $5,625

Since you are short on the contracts, you will have to make up for this loss by paying variation margin.

Variation Margin due = $5,625 - initial margin

Assuming the initial margin was $9,000 (which is usually around 1% of the contract value), we get:

Variation Margin due = $5,625 - $9,000
Variation Margin due = -$3,375

This means you need to receive $3,375 in variation margin. However, since you were short on the contracts, the variation margin calculation is reversed, and you will have to pay $3,375.

Therefore, the correct answer is C: You will have to pay USD 3,675.00.

You Are Short of 6 December EURODOLLAR Futures Contracts at 99.50