Question 1

An orange grower who is concerned that the price of oranges will fall before harvest and sale can:

Accepted Answer

By selling an orange futures contract today, the grower locks in a price for his oranges, hedging against the risk of a price drop before harvest.

Question 2

The Chicago Board of trade (CBOT)established an organised market in grain futures contracts in:

Accepted Answer

The Chicago Board of Trade (CBOT) established an organized market in grain futures contracts in 1848.

Question 3

In the futures markets,the price of a futures contract is:

Accepted Answer

The price of a futures contract is determined by demand and supply between market participants in the futures market. The price reflects market expectations of the spot price on the day of delivery, as well as other factors such as interest rates, storage costs, and supply and demand for the underlying asset. The futures exchange facilitates trading and sets rules for delivery and settlement, but it does not determine the price of the contract. The price may also be influenced by external factors such as geopolitical events or changes in macroeconomic conditions. The price is not specified in each futures contract, although the contract may have specifications such as the size of the underlying asset or the delivery date.

Question 4

Which of the following statements about futures is correct?

Accepted Answer

This statement is true. Most financial futures contracts, such as those for commodities and currencies, are settled through cash payments rather than actual delivery of the underlying asset. Therefore, only a small percentage of futures contracts result in actual delivery.

Question 5

In Australia the Sydney Futures Exchange (SFE)that is now merged with the ASX introduced the 90-day bank-accepted bills futures contract in:

Accepted Answer

The question specifically mentions that the SFE introduced the 90-day bank-accepted bills futures contract, and the only option with the year being a multiple of 10 (indicating a decade) after 1959 is 1979. Therefore, C is the best choice.

Question 6

In the futures markets,the seller of a futures contract:

Accepted Answer

The seller of a futures contract takes the short position and has the obligation to deliver the underlying financial asset at the specified future date.

Question 7

In the futures markets,the seller of a futures contract:

Accepted Answer

The seller of a futures contract takes the short position, as they are selling the asset in question in hopes that the price will decline. They are obligated to sell the underlying asset at the specified future date.

Question 8

Which of the following about Australian Treasury bond futures is NOT correct?

Accepted Answer

The answer of Which of the following about Australian Treasury...

Question 9

The Chicago Board of trade (CBOT)introduced the world's first financial (interest rate)futures contract in:

Accepted Answer

The Chicago Board of Trade (CBOT) introduced the world's first financial (interest rate) futures contract in 1975, marking a significant innovation in financial markets.

Question 10

At the end of six months for a wheat farmer who sold previously a 6 month wheat futures contract,he may:

Accepted Answer

If the farmer chooses option C, they can sell their wheat in the spot market at the prevailing market price and then buy an identical futures contract to the one they previously sold, effectively canceling out their original contract. This allows them to lock in a price for their wheat while also taking advantage of any price gains that may have occurred during the contract period. Option A is also technically possible, but it assumes that the farmer wants to deliver their wheat rather than sell it. Option B is not a good choice because it leaves the farmer exposed to price risk without any hedging. Option D is not necessarily true and depends on the price fluctuations of the wheat market during the contract period.

Question 11

Which of the following statements is characteristic of futures trading on the Australian Futures Exchange (ASX Trade 24)?

Accepted Answer

Pricing of bond contracts on the Australian Futures Exchange (ASX Trade 24) is indeed based on their yield to maturity. This is a common practice in futures trading where bond futures are priced according to their expected yield at maturity, reflecting the interest rate environment and the credit quality of the issuer.

Question 12

Any Australian Treasury bond futures contract for a yield of 7.50 per cent per annum is quoted on the futures exchange as:

Accepted Answer

Australian Treasury bond futures contracts are quoted in terms of 100 - Yield. Therefore, the calculation would be 100 - 7.50 = 92.50. The quote format includes three decimal places, so the answer would be 92.500.

Question 13

In the futures markets the buyer of a financial futures contract:

Accepted Answer

In futures markets, the buyer of a financial futures contract takes the long position. This means that they are betting on an increase in the price of the underlying asset and have the right to buy the asset at a specified future date. They do not have the obligation to deliver the underlying asset. The clearing house records the contract, but this applies to both buyers and sellers.

Question 14

In futures markets,the terms of a futures contract,for instance the quality and quantity of the commodity and the delivery date,are specified by the:

Accepted Answer

The terms of a futures contract are specified by the futures exchange, which sets the standard specifications for the underlying commodity, including quality and quantity, as well as the delivery date. This ensures that all market participants have access to the same information and reduces the potential for disputes. Buyers and sellers enter into contracts based on these standard specifications. Brokers and dealers facilitate the trading of futures contracts but do not have a role in specifying the terms of the contract.

Question 15

At the present time:

Accepted Answer

Each exchange around the world has its own convention for quoting the prices of futures contracts. For example, some exchanges quote the price as cents per pound, while others quote it as dollars per metric ton.

Question 16

Which of the following about futures orders is incorrect?

Accepted Answer

Futures orders are placed into the trading system based on price and time priority, not size details or any price restrictions. This means that orders are executed in the order they are received at the best available price, rather than being organized by the size of the order or specific price limits set by the trader.

Question 17

Which of the following is a derivative product?

Accepted Answer

Futures are a type of derivative product because their value is derived from an underlying asset such as a commodity, currency, or financial instrument. They allow traders to take on speculative positions or hedge their exposure to market risk. Commercial paper, mortgages, and treasury notes are types of debt securities that do not fit the definition of a derivative product.

Question 18

Which of the following about futures contracts is incorrect?

Accepted Answer

Interest rate futures contracts and FRAs are traded over-the-counter (OTC), not on futures exchanges.

Question 19

Which of the following statements about futures contracts is correct?

Accepted Answer

Futures contracts are typically used for hedging or speculative purposes and are not usually held to maturity. Instead, contract holders will buy or sell an opposite contract on or before the expiry date to close-out their position. This can either result in a profit or a loss depending on the market price at the time of closing out the contract.

Question 20

In the futures markets,the buyer of a financial futures contract:

Accepted Answer

The buyer of a financial futures contract has the obligation to receive the underlying financial asset at the specified future date. This is because the buyer is going long on the contract and is expecting the price of the underlying asset to increase, hence wanting to buy it at a pre-determined price in the future. The seller, on the other hand, takes the short position and has the obligation to deliver the underlying asset at the specified future date. Option A is incorrect because the buyer is not taking the short position. Option B is incorrect because it is the seller who has the obligation to deliver the underlying asset. Option D is partly correct, as both the buyer and seller have to record the contract with the clearing house.

Quiz 19: Future Contracts and Forward Rate Agreements

An orange grower who is concerned that the price of oranges will fall before harvest and sale can:

The Chicago Board of trade (CBOT) established an organised market in grain futures contracts in:

In the futures markets,the price of a futures contract is:

Which of the following statements about futures is correct?

In Australia the Sydney Futures Exchange (SFE) that is now merged with the ASX introduced the 90-day bank-accepted bills futures contract in:

In the futures markets,the seller of a futures contract:

In the futures markets,the seller of a futures contract:

Which of the following about Australian Treasury bond futures is NOT correct?

The Chicago Board of trade (CBOT) introduced the world's first financial (interest rate) futures contract in:

At the end of six months for a wheat farmer who sold previously a 6 month wheat futures contract,he may:

Which of the following statements is characteristic of futures trading on the Australian Futures Exchange (ASX Trade 24) ?

Any Australian Treasury bond futures contract for a yield of 7.50 per cent per annum is quoted on the futures exchange as:

In the futures markets the buyer of a financial futures contract:

In futures markets,the terms of a futures contract,for instance the quality and quantity of the commodity and the delivery date,are specified by the:

At the present time:

Which of the following about futures orders is incorrect?

Which of the following is a derivative product?

Which of the following about futures contracts is incorrect?

Which of the following statements about futures contracts is correct?

In the futures markets,the buyer of a financial futures contract: