An investor enters into a long position on two crude oil futures contracts. Each contract is for 1,000 barrels. The initial margin requirement is $4,000 per contract, and the maintenance margin is $3,000 per contract. If the investor's margin account currently holds $8,000, and the price of crude oil drops by $1.50 per barrel, what is the margin balance, and will a margin call be issued?

Question: An investor enters into a long position on two crude oil futures contracts. Each contract is for 1,000 barrels. The initial margin requirement is $4,000 per contract, and the maintenance margin is $3,000 per contract. If the investor's margin account currently holds $8,000, and the price of crude oil drops by $1.50 per barrel, what is the margin balance, and will a margin call be issued?

Answer options:

• Margin balance is $5,000; no margin call. ✅ Margin balance is $5,000; a margin call for $1,000 will be issued.
• Margin balance is $6,000; no margin call.
• Margin balance is $6,000; a margin call for $2,000 will be issued.

Correct answer: Margin balance is $5,000; a margin call for $1,000 will be issued.

Explanation: Initial margin is 2 * $4,000 = $8,000. A price drop of $1.50 per barrel on 2,000 barrels (2 contracts * 1,000 barrels/contract) results in a loss of $3,000. New margin balance = $8,000 - $3,000 = $5,000. Total maintenance margin = 2 * $3,000 = $6,000. Since $5,000 < $6,000, a margin call for $6,000 - $5,000 = $1,000 will be issued.