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# Answer to Question #223901 in Finance for Collins

Question #223901
ABC Company Ltd purchased 5000 cocoa futures contract at a price of $150 per contract. As part of the contract, ABC was required to deposit$10 per
contract initially in their account with the maintenance margin set at $5 per contract. If the price per contract falls to$142 overnight, what action will the
exchange require ABC to undertake?
1
2021-08-06T07:31:05-0400

Computation of the compensation amount:

"Compensation\\space Amount=(Initial\\space Margin+Maintenance\\space Margin)\u00d7Number\\space of\\space Future \\space Contract\\\\=(\\$10+\\$5)\u00d75,000\\\\=\\$15\u00d75,000\\\\=\\$75,000"

The company will not exercise the futures contract as the price per contract falls to $142 from$150 which leads to the loss for the company. Thus, the company only has to pay a compensation amount of \$75,000.

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