Daily futures settlement changes a cash balance

The case and its answers

Every question of this case, with its answer and why each other option is wrong.

A learner buys three futures contracts at a quoted price of 1,000. Each hypothetical contract represents 50 units. The first day’s settlement price is 980 and the second day’s settlement price is 1,010. Daily mark-to-market is credited or debited in cash using that day’s change from the previous settlement price. The entry price is the first day’s reference. The learner initially deposits ₹15,000. There are no later deposits, withdrawals, charges or interest. The fictional broker’s maintenance threshold is ₹12,000 and a top-up is requested only when the balance is strictly below it. All positions remain open through the second settlement.

The multiplier and margin amounts are teaching assumptions, not exchange requirements.

Daily settlement cash flows fully enter the stated margin cash balance.

1. Q1What is the first day’s mark-to-market cash flow?

   • A

     Option A. A debit of ₹1,000

     Why it is wrong: This is the loss for only one contract.

   • B

     Option B. A debit of ₹3,000 — Correct answer

   • C

     Option C. A credit of ₹3,000

     Why it is wrong: A long futures position loses when price falls.

   • D

     Option D. A debit of ₹20

     Why it is wrong: This ignores units and number of contracts.

   Answer: B. Day-one mark-to-market = (980 − 1,000) × 3 × 50 = −₹3,000. The balance becomes ₹12,000, exactly at the given threshold. Remember: Price changes must be scaled by total contract units.

   Hint, shown before you answer in practice mode: Multiply the price decline by three contracts and 50 units.

   XIII-P-C01-Q1mediumnumerical

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2. Q2What is the second day’s mark-to-market cash flow?

   • A

     Option A. A credit of ₹30

     Why it is wrong: This omits the total contract units.

   • B

     Option B. A credit of ₹4,500 — Correct answer

   • C

     Option C. A debit of ₹4,500

     Why it is wrong: A long position gains when the settlement price rises.

   • D

     Option D. A credit of ₹1,500

     Why it is wrong: This uses entry price instead of the previous settlement price.

   Answer: B. Day-two mark-to-market = (1,010 − 980) × 3 × 50 = ₹4,500. Daily settlement uses the previous settlement, not the original entry on every day. Remember: Do not double count or omit an earlier daily settlement.

   Hint, shown before you answer in practice mode: Compare 1,010 with the previous settlement of 980.

   XIII-P-C01-Q2mediumnumerical

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3. Q3What is the total gain across both days?

   • A

     Option A. ₹4,500

     Why it is wrong: This ignores the first day’s loss.

   • B

     Option B. ₹7,500

     Why it is wrong: This adds the magnitude of the loss as if it were a gain.

   • C

     Option C. ₹1,500 — Correct answer

   • D

     Option D. A loss of ₹1,500

     Why it is wrong: The second settlement is above the entry price.

   Answer: C. Total gain = −₹3,000 + ₹4,500 = ₹1,500, also equal to (1,010 − 1,000) × 150. Remember: Cumulative daily mark-to-market reconciles to the total price change.

   Hint, shown before you answer in practice mode: Add signed daily cash flows or compare final price with entry.

   XIII-P-C01-Q3mediumnumerical

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4. Q4What is the cash balance after the second settlement?

   • A

     Option A. ₹12,000

     Why it is wrong: This stops after the first settlement.

   • B

     Option B. ₹15,000

     Why it is wrong: This ignores both daily mark-to-market cash flows.

   • C

     Option C. ₹16,500 — Correct answer

   • D

     Option D. ₹19,500

     Why it is wrong: This adds the day-two gain without deducting the day-one loss.

   Answer: C. Balance = ₹15,000 − ₹3,000 + ₹4,500 = ₹16,500. No top-up was triggered because the day-one balance was not strictly below ₹12,000. Remember: A profitable final position can still experience interim cash pressure.

   Hint, shown before you answer in practice mode: Start with ₹15,000 and include both signed settlements.

   XIII-P-C01-Q4hardnumerical

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