Question 1

The exchange uses the settlement price to ________ the investor's position, so that any gain or loss from the position is quickly reflected in the investor's equity account.

Accepted Answer

The phrase "settle to market" is not commonly used in financial markets. "Mark to settle" and "mark to sale" are also not commonly used phrases. "Mark to market" is the term used to describe the process of valuing a financial instrument based on the current market price. Therefore, the exchange uses the settlement price to mark to market the investor's position, so that any gain or loss from the position is quickly reflected in the investor's equity account.

Question 2

The basic economic function of futures markets is to provide a chance for market participants ________.

Accepted Answer

Futures markets serve primarily as risk-management tools. Participants can use futures contracts to hedge against the risk of adverse price movements in the underlying assets they hold or produce. While leverage and speculation opportunities are available, they are secondary to the primary purpose of risk management. Diversification can be achieved through investment in different asset classes or through trading multiple futures contracts.

Question 3

Most financial futures contracts have settlement dates in the months of ________.

Accepted Answer

Most financial futures contracts have settlement dates in the months of March, June, September, or December, which are also known as "quarterly months." These months are chosen to align with the calendar quarters of the year. Therefore, only option B is correct.

Question 4

Without financial futures, investors would have only one trading location to alter portfolio positions when they get new information that is expected to influence the value of assets and that is the ________.

Accepted Answer

The cash market is the only trading location where investors can alter portfolio positions in the absence of financial futures. This market involves the buying and selling of securities that are settled in cash on the day the trade is executed. Without access to financial futures, investors must rely on the cash market to adjust their portfolio holdings based on new information about asset values.

Question 5

In regards to a futures contract, which of the below statements is FALSE?

Accepted Answer

Explanation: The statement in A is false because it inaccurately describes the profit conditions for buyers and sellers of futures contracts. In reality, the buyer of a futures contract will realize a profit if the futures price increases (not decreases), and the seller will profit if the futures price decreases (not increases).

Question 6

Which of the below statements is FALSE?

Accepted Answer

The exchange does have the right to impose a limit on the daily price movement of a futures contract from the previous day's closing price. This is done to prevent extreme price movements and provide stability to the market. Therefore, statement C is false.

Question 7

________ is an agreement between a buyer and a seller, in which the ________ agrees to take delivery of something at a specified price at the end of a designated period of time, and the ________ agrees to make delivery of something at a specified price at the end of a designated period of time.

Accepted Answer

A futures contract is an agreement between a buyer and a seller where the buyer agrees to take delivery of something at a specified price at the end of a designated period of time, and the seller agrees to make delivery of something at a specified price at the end of a designated period of time.

Question 8

Which of the below statements is FALSE?

Accepted Answer

The answer of Which of the below statements is FALSE?
...

Question 9

For many financial assets, it is in the ________ that it is easier and less costly to alter a portfolio position.

Accepted Answer

The futures market allows investors to buy and sell contracts for the future delivery of financial assets or commodities, often with a smaller capital outlay and greater liquidity than the actual underlying assets, making it easier and less costly to alter a portfolio position.

Question 10

Parties to a futures contract can ________ their position by taking an offsetting position in the same contract. For the ________ of a futures contract, this means selling the same number of identical futures contracts; for the ________ of a futures contract, this means buying the same number of identical futures contracts.

Accepted Answer

Parties to a futures contract can liquidate their position by taking an offsetting position in the same contract. For the seller of a futures contract, this means selling the same number of identical futures contracts; for the buyer of a futures contract, this means buying the same number of identical futures contracts. Therefore, only choice C correctly matches the actions taken by the parties with their respective positions in the futures contract.

Question 11

One alternative in liquidating a futures contract position is to wait until the ________. At that time the party ________ a futures contract accepts delivery of the underlying; the party that ________ a futures contract liquidates the position by delivering the underlying at the agreed-upon price.

Accepted Answer

In futures trading, the settlement date is the specified time at which the party who has purchased a futures contract accepts delivery of the underlying asset, while the party that has sold the futures contract fulfills their obligation by delivering the underlying asset at the agreed-upon price.

Question 12

To create a particular futures contract, ________ must obtain approval from the ________, a government regulatory agency.

Accepted Answer

To create a futures contract, an exchange must obtain approval from the Commodity Futures Trading Commission (CFTC), which is a government regulatory agency responsible for overseeing futures trading in the United States. The other options listed do not accurately describe the process for creating a futures contract or the regulatory agency responsible for overseeing futures trading.

Question 13

________ are standardized agreements as to the delivery date (or month) and quality of the deliverable, and are traded on organized exchanges, while ________ is usually nonstandardized because the terms of each contract are negotiated individually between buyer and seller.

Accepted Answer

Futures contracts are standardized agreements traded on organized exchanges, while forward contracts are usually nonstandardized and negotiated individually between buyer and seller.

Question 14

________ are not intended to be settled by delivery. In fact, generally fewer than 2% of outstanding contracts are settled by delivery.

Accepted Answer

Futures contracts are not intended to be settled by delivery. In fact, the vast majority of futures contracts are settled in cash. Only a small percentage of futures contracts result in the actual delivery of the underlying asset.

Question 15

Which of the below does NOT involve a function of the clearinghouse?

Accepted Answer

The clearinghouse does not take the same position as the parties in the transaction; instead, it acts as an intermediary, ensuring the transaction is completed by becoming the counterparty to both sides.

Question 16

When a position is first taken in a futures contract, the investor must deposit a ________ dollar amount per contract as specified by the exchange. This amount, called ________, is required as a deposit for the contract.

Accepted Answer

The correct answer is D) minimum; initial margin. When an investor first enters into a futures contract, they must deposit a minimum dollar amount per contract as specified by the exchange. This amount is known as the initial margin, and it serves as a deposit to open the position in the futures contract.

Question 17

In regards to a futures contract, which of the below statements is FALSE?

Accepted Answer

When an investor takes a position in the market by buying a futures contract, the investor is said to be in a long position or to be long futures. A short position refers to selling futures, not buying them.

Question 18

One classification for financial futures is ________.

Accepted Answer

Bond index futures, dollar futures, and commodity futures are all separate classifications for financial futures. Interest rate futures, on the other hand, specifically deal with the future price of interest rates on financial instruments such as bonds and loans.

Question 19

Which of the below statements is TRUE?

Accepted Answer

The answer of Which of the below statements is TRUE?
...

Question 20

As the value of a futures contract is derived from the value of the underlying instrument, futures contracts are commonly called ________.

Accepted Answer

Futures contracts are considered derivative instruments because their value is derived from the underlying asset or instrument. Option instruments and forward instruments are distinct from futures contracts, while index instruments may be used as underlying assets for futures contracts.

Quiz 26: Financial Futures Markets

The exchange uses the settlement price to ________ the investor's position, so that any gain or loss from the position is quickly reflected in the investor's equity account.

The basic economic function of futures markets is to provide a chance for market participants ________.

Most financial futures contracts have settlement dates in the months of ________.

Without financial futures, investors would have only one trading location to alter portfolio positions when they get new information that is expected to influence the value of assets and that is the ________.

In regards to a futures contract, which of the below statements is FALSE?

Which of the below statements is FALSE?

is an agreement between a buyer and a seller, in which the agrees to take delivery of something at a specified price at the end of a designated period of time, and the agrees to make delivery of something at a specified price at the end of a designated period of time.

Which of the below statements is FALSE?

For many financial assets, it is in the ________ that it is easier and less costly to alter a portfolio position.

Parties to a futures contract can their position by taking an offsetting position in the same contract. For the of a futures contract, this means selling the same number of identical futures contracts; for the of a futures contract, this means buying the same number of identical futures contracts.

One alternative in liquidating a futures contract position is to wait until the . At that time the party a futures contract accepts delivery of the underlying; the party that a futures contract liquidates the position by delivering the underlying at the agreed-upon price.

To create a particular futures contract, must obtain approval from the , a government regulatory agency.

are standardized agreements as to the delivery date (or month) and quality of the deliverable, and are traded on organized exchanges, while is usually nonstandardized because the terms of each contract are negotiated individually between buyer and seller.

________ are not intended to be settled by delivery. In fact, generally fewer than 2% of outstanding contracts are settled by delivery.

Which of the below does NOT involve a function of the clearinghouse?

When a position is first taken in a futures contract, the investor must deposit a dollar amount per contract as specified by the exchange. This amount, called , is required as a deposit for the contract.

In regards to a futures contract, which of the below statements is FALSE?

One classification for financial futures is ________.

Which of the below statements is TRUE?

As the value of a futures contract is derived from the value of the underlying instrument, futures contracts are commonly called ________.