A speculator enters into a long futures contract for 1,000 barrels of crude oil at $70 per barrel. The initial margin requirement is 7% of the contract value, and the maintenance margin is 5%. If the crude oil price drops to $68 per barrel, what is the investor's margin balance, and will a margin call be triggered?

Question: A speculator enters into a long futures contract for 1,000 barrels of crude oil at $70 per barrel. The initial margin requirement is 7% of the contract value, and the maintenance margin is 5%. If the crude oil price drops to $68 per barrel, what is the investor's margin balance, and will a margin call be triggered?

Answer options:

• Margin balance: $5,000; No margin call
• Margin balance: $7,000; No margin call ✅ Margin balance: $5,000; Margin call triggered
• Margin balance: $2,000; Margin call triggered

Correct answer: Margin balance: $5,000; Margin call triggered

Explanation: Initial margin is $70 * 1,000 * 0.07 = $4,900. When the price drops to $68, the loss is $2 * 1,000 = $2,000. Current margin balance is $4,900 - $2,000 = $2,900. The maintenance margin is $70 * 1,000 * 0.05 = $3,500. Since $2,900 is below $3,500, a margin call is triggered.