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Contract for Difference (CFD) – Journal Questions

Journal Questions

CFD—Functional Currency US$

Stamford Fund had the following trades in Alcoa in the CFD market. The counterparty is Robinson & Co., which takes a margin of 10 percent of the value of the contract upfront. The funding cost of a long position is calculated at 2 percent per month for overnight carry of position. Brown & Co. pays interest at 6 percent per annum on the margin money deposited with them.

Stamford Fund introduced $1 million on January 1. The market rate of Alcoa fluctuated widely, triggering a margin call. Stamford Fund decided to make a deposit of $200,000 in the margin account on that date. Valuation dates are month ends. Prepare journal entries, general ledgers, trial balance, income statement, and balance sheet as of February 15, when the interest on margin account is also computed.
Date                Expiry           Quantity            Rate (US$)           Long/Short                Brokerage
29-Jan-X1     15-Feb-X1      10,000                $65                    Long                           $700
5-Feb-X1      15-Feb-X1        3,500                $72                    PartialTermination      $200

Date                  Market Price
29-Jan-X1             67
30-Jan-X1             68
31-Jan-X1             70
1-Feb-X1              72
2-Feb-X1              78
5-Feb-X1              73
6-Feb-X1              78
7-Feb-X1              80
8-Feb-X1              77
9-Feb-X1              75
12-Feb-X1            83
13-Feb-X1            80
14-Feb-X1            83
15-Feb-X1            75

CFD—Trade Currency SGD
Asian Fund had the following trades in SingTel in the CFD market. The counterparty is Jing Jang & Co., which collects a margin of 10 percent of the value of the contract up front. The funding cost of a long position is calculated at 2 percent per month for overnight carry of position. Jing Jang & Co. pays interest at 6 percent per annum on the margin money deposited with them. The fund introduced US$ 1 million on February 1. On the same day, Asian Fund converted $500,000 into SGD at 1.45.
There was a margin call on March 4 and Asian Fund decided to make a deposit of SGD 500,000 in the margin account on that date. Valuation dates are month ends. Prepare journal entries, general ledgers, trial balance, income state-ment, and balance sheet as of March 15, when the interest on margin account is also computed.

Date                Expiry                Quantity             Rate              Long/Term                Brokerage (SGD)
26-Feb-X1    15-Mar-X1          12,000              SGD 55            Long                                1,200
5-Mar-X1      15-Mar-X1            4,500              SGD 48           PartialTermination              450

Date                     Market Price          FX Rate
26-Feb-X1                55                     1.47
27-Feb-X1                54                     1.46
28-Feb-X1                55                     1.45
1-Mar-X1                  52                     1.46
2-Mar-X1                  50                     1.47
5-Mar-X1                  49                     1.49
6-Mar-X1                  50                     1.50
7-Mar-X1                  51                     1.54
8-Mar-X1                  52                     1.57
9-Mar-X1                  53                     1.52
12-Mar-X1                55                     1.51
13-Mar-X1                57                     1.55
14-Mar-X1                59                     1.57
15-Mar-X1                58                     1.54

CFD—Trade Currency JPY

Kyoto Fund had the following trades in PQR shares in the CFD market. The counterparty is Yamashita & Co., which collects a margin of 15 percent of the value of the contract upfront and the funding cost of long position is calculated at 1 percent per month for overnight carry of position. Jing Jang & Co. pays interest at 3 percent per annum on the margin money deposited with them. The fund introduced US$ 1 million on February 1. On the same day, Kyoto Fund converted $500,000 into JPY at 117.
There was a margin call on March 7, and Kyoto Fund decided to make a deposit of JPY 5 million in the margin account on that date. Valuation dates are month ends. Prepare  journal entries, general ledgers, trial balance, income statement, and balance sheet as of March 15, when the interest on margin account is also computed.

Date                Expiry           Quantity            Rate                     Long/Term                  Brokerage
26-Feb-X1    15-Mar-X1      3,000             JPY 2250                 Long                            JPY 5600
5-Mar-X1      15-Mar-X1      1,250             JPY 2600                 PartialTermination       JPY 2600

Date             Market Price         FX Rate
26-Feb-X1       2250                  117
27-Feb-X1       2350                  116
28-Feb-X1       2450                  115
1-Mar-X1         2550                  116
2-Mar-X1         2450                  114
5-Mar-X1         2350                  116
6-Mar-X1         2450                  117
7-Mar-X1         2550                  118
8-Mar-X1         2650                  119
9-Mar-X1         2750                  121
12-Mar-X1       2850                  122
13-Mar-X1       2750                  121
14-Mar-X1       2650                  120
15-Mar-X1       2550                  118

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