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Question

  With respect to the futures transactions, the purpose of margin is to ________

A Make trades easier Correct Answer Incorrect Answer
B Reduce price risk for futures investors Correct Answer Incorrect Answer
C Provide security to the clearinghouse Correct Answer Incorrect Answer
D All of the above Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

Futures contract is an exchange-traded contract to buy or sell an underlying asset at a future date at an agreed price . A margin account has to be opened by both parties of the futures contract, when opening a futures contract where a margin i.e. an amount of money is to be deposited with the clearing house by both the parties. This margin is like a security to the clearinghouse and it serves to ensure traders will fulfil their obligations.

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