| Derivatives Securities |
Hershey, a chocolate manufacturer, uses the futures market to hedge against increases in the price of cocoa. On June 4th it opens a 100 contract futures position on cocoa using the December contract and posts an initial margin of $2,000 per contract.
The position is entered into at a futures price of $49,800 per contract. The maintenance margin is $1,000 per contract. At the end of the day on June 4th, the December contract settles at $50,000. On June 5th. , Hershey increases its future position by adding 20 additional December contracts, entered into at a price of $51,000 per contract. On June 5th. the December contract settles at $50,200.
- What is the cash flow on Hershey’s margin account at the end of the day on June 5th.? Please, specify if the cash flow is positive or negative
- Under what circumstances would Hershey receive a margin call on June 6th.?