General Theory - Summary And Review
Futures contracts have existed in some form for a very long time, but weren't standardized and exchange-traded until the mid-19th century. Futures were historically based on agricultural products, but financial futures were developed starting in 1971. Futures are conceptually similar to forward contracts, but differ in some key respects. The futures market has a unique structure in which hedgers and speculators participate, and a vocabulary not unlike that of the market for options, another type of derivative.
Review 1. Which is not an antecedent of the contemporary futures contract?
- Japanese rice and silk contracts
- Forward contracts
- Exchange-traded options
2. In which way does a future contract differ from a forward contract?
- It can be customized in terms of quantity of goods and delivery dates.
- It trades directly between buyer and seller.
- It is guaranteed by an exchange.
- It trades in a government-regulated market.
3. It is July. September futures for soybean oil settled today at 26'45 ($0.2645/pound) and December soybean oil futures settled at 26'57. The 90-day BA rate is an annualized 4.00%. True or false: The market for soybean oil is above full carry.
4. A trader expects the price of heating oil to decrease faster than the market predicts so she, on her own account, sells a futures contract "borrowed" from her firm. This market participant is acting as:
- a hedger taking a long position
- a hedger taking a short position
- a speculator taking a long position
- a speculator taking a short position
5. If an option's price would change $0.30 if its underlying commodity moved $1.00 then 0.3 is the:
- time value
6. Hedging is the inverse of speculation
7. An associated person hedging an asset or futures position with a similar, but not identical contract has entered into a cross hedge
8. A manufacturer of 200,000 pounds of Unobtanium is desirous of hedging her inventory. Each contract is 50,000 pounds.
- Purchase four futures contracts.
- Sell eight futures contracts.
- Sell four futures contracts.
- Purchase eight futures contracts.
9. An artisanal baker wants to hedge the risk in increased costs of flour. He should:
- Be long wheat futures.
- Be short flour futures
- Be long flour futures.
- Be short wheat futures.
10. To hedge falling prices, a holder of inventory should purchase futures contract equal to the quantity of inventory.
11. Commodity Pool Operators (CPOs) advise on the purchase of commodities or a commodities-based investment strategy.
Investing NewsShares of Glencore International, a leading multinational commodities and mining company, jumped by around 15% on London Stock Exchange, after the shares had gained about 71% earlier on the Hong ...
Investing BasicsPlain vanilla is a term used in investing to describe the most basic types of financial instruments.
InvestingCommodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
InvestingWest Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
InvestingGrowing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
EconomicsThe Fed continues to delay normalizing rates, citing inflation concerns and “global economic and financial developments” in explaining its rationale.
Investing NewsAlcoa plans to split into two companies. Is this a bullish catalyst for investors?
InvestingIn an industry still largely predominated by men, we look at 6 leading female value investors working today.
Forex FundamentalsThe best times to trade the Mexican peso are centered around economic releases, typically in the morning hours.
Chart AdvisorNews out of Alcoa is causing active traders to turn toward base metals for opportunities. Before diving into the market, check out the charts of these three ETFs.
The estimated volatility of a security's price.
The most basic or standard version of a financial instrument, ...
A security with a price that is dependent upon or derived from ...
A securities license entitling the holder to register as a limited ...
A transaction that can cancel out a forward contract that has ...
The security that is delivered by the short position holder in ...
Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>