Solutions Manual for Options Futures and Other Derivatives 10th Edition by Hull IBSN 9780134472089 CHAPTER 2 Futures Markets and Central Counterparties Practice Questions Problem 2.1. Distinguish between the terms open interest and trading volume. The
Solutions Manual for Options Futures and Other Derivatives 10th Edition by Hull IBSN 9780134472089 CHAPTER 2 Futures Markets and Central Counterparties Practice Questions Problem 2.1. Distinguish between the terms open interest and trading volume. The open interest of a futures contract at a particular time is the total number of long positions outstanding. (Equivalently, it is the total number of short positions outstanding.) The trading volume during a certain period of time is the number of contracts traded during this period. Problem 2.2. What is the difference between a local and a futures commission merchant? A futures commission merchant trades on behalf of a client and charges a commission. A local trades on his or her own behalf. Problem 2.3. Suppose that you enter into a short futures contract to sell July silver for $17.20 per ounce. The size of the contract is 5,000 ounces. The initial margin is $4,000, and the maintenance margin is $3,000. What change in the futures price will lead to a margin call? What happens if you do not meet the margin call? There will be a margin call when $1,000 has been lost from the margin account. This will occur when the price of silver increases by 1,000/5,000 $0.20. The price of silver must therefore rise to $17.40 per ounce for there to be a margin call. If the margin call is not met, your broker closes out your position.
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