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Chapitre 2 - Manuel Flashcards

1
Q

When does trading usually cease in futures contract ?

A

Some time during the delivery period

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2
Q

Futures : who chooses when delivery is made ?

A

Short position

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3
Q

Majority of futures contracts initiated do not ___

A

Majority of futures contracts initiated do not lead to delivery

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4
Q

Futures: When do most traders choose to close out their position?

A

Prior to the delivery period

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5
Q

Futures contract : The exchange must specify in detail the exact nature of the agreement between two parties. What does that include? (4)

A
  • Asset
  • Contract size
  • Where delivery can be made
  • When delivery can be made
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6
Q

Definition : treasury bond contract

A

Any US Treasury bond that has a maturity between 15-25 years on the first day of the delivery month

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7
Q

Definition: 10-year treasury note futures contract

A

Underlying asset is any treasury note with a maturity between 6.5-10 years on the first day of the delivery month

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8
Q

Contract size : definition

A

Amount of the asset that has to be delivered under one contract

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9
Q

What happens if contract size is too large?

A

Traders who wish to hedge small exposure or take small speculative positions will be unable to use the exchange

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10
Q

What happens if contract size is too small?

A

Trading may be expensive because there is a cost with each contract traded

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11
Q

Futures contract are specified by ?

A

Delivery month

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12
Q

The delivery months vary and are chosen by ___

A

The delivery months vary and are chosen by the exchange t omeet the needs of markket participants

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13
Q

Who specifies the last day of trading ? When does trading cease ?

A
  • The exchange specifies the last day of trading
  • Trading ceases a few days before the last day f delivery
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14
Q

Limit down vs limit up vs limit move: definition

A

Limit down
Price moves down from the previous day’s close by an amount equal to the daily price limit

Limit up
Price moves up from the previous day’s close by an amount equal to the daily price limit

Limit move
Move in either direction = daily price limit

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15
Q

Limit up: definition

A

Price moves up from the previous day’s close by an amount equal to the daily price limit

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16
Q

Trading ceases for the day once ___

A

Trading ceases for the day once the contract is limit up or limit down

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17
Q

Why the exchange has the authority to change the limits ?

A

Prevent large price movements from occuring because of speculative excesses

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18
Q

Position limit : definition

A

Maximum number f contracts that a speculator may hold

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19
Q

Whe the delivery period is reached, the futures price ___ the spot price

A

Whe the delivery period is reached, the futures price equals the spot price

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20
Q

Explain why futures price converges to the spot price as the elivery period is approached

A

Futures price > spot price ​

  • Traders can sell futures contract, buy the asset and make delivery
  • Profit = futures price - spot price
  • As traders exploit this arbitrage opportunity, the futures price will fall (­(futures offer increase = futures price fall)

Futures price < spot price

  • Companies will buy a futures contract and wait for delivery
  • The futures price will then rise as they do so (increase demande = futures price go up)
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21
Q

Suppose you lost 1800$ in a long position. What happens ?

A

Long has to pay the exchange clearing house 1800$ and the money is passed to the broker of an investor with a short position

22
Q

Suppose you gain 1800$ in a long position. What happens ?

A

Broker for parties with short position pay money to the exchange clearing house and brokers for aprties with long position receive money from the exchange clearing house

23
Q

When does the investor receive a margin call ? What does he have to do ?

A

When margin account < maintenance margin : has to top-up the margin account to the initial margin level the next day

24
Q

What do brokers pays to investors ?

A

Interest on the balance in a margin account

25
Why doesn't balance in the margin account represent a true cost ?
Interest rate is competitive with what could be earned else where
26
What can investor do to satisfy the initial margin requirements ? What is accepted also in lieu of cash (2)?
Can deposit securities **Also accepted in lieu of cash:** * Treasury (90% of their face value) * Shares (50% of their market value)
27
Forward contract (1)vs futures contract (3)
**Forward contract** Settled at the end of its life **Futures contract** * Settled daily * At the end of each day, investor's gain/loss is added/substracted from the margin account (bringing the value of the cntract back to 0) * Futures contract is closed out and rewritten at a new price each day
28
Minimum levels for the initial and maintenance margin are set by ?
Exchange clearing house
29
Minimum margins determined by \_\_\_
Minimum margins determined by **the variability f the price of the underlying asset** (higher variability, higher margin levels)
30
Hedger has ___ margins requirements than a speculator because \_\_\_
Hedger has **lower** margins requirements than a speculator because **there is less risk of default**
31
Day trade : definition
Traders announce to the broker an intent to close out the position in the same day
32
Spread transaction: definition
Trader simultaneously buys a contract on an asset for one maturity month and sells a contract on the same asset for another maurity month
33
Do day trade and spread transaction require lower or higher margin than hedge transactions?
Higher
34
OTC : who provide initial margin and daily variation margin ? What are they required to contribute to also?
* Members of the CCP * Have to contribute to a guarantee fund
35
OTC: When CCP accepts the transaction, becomes the \_\_\_
OTC: When CCP accepts the transaction, becomes the **cunterparty to A and B**
36
OTC transactions that are not cleared through CCPs are cleared __ + (2)
OTC transactions that are not cleared through CCPs are cleared **bilaterally** * 2 companies enter into a master agreement covering all their trade * Includes an CSA (credit supprt annexe) - -requiring A and B to provide collateral
37
Bilateral clearing : what happens if ## Footnote **A) Transaction between A and B increase in value to A by X (decrease in value to B by X)** **B) Transaction between A and B increase in value to B by X (decrease in value to A by X)**
A) B is required to provide X of collateral to A B) A is required to provide X of collateral to B
38
Futures trades vs OTC trades
**Futures trades** Initial amrgins earn interest Daily variation margin provided by a clearing house memebr does not earn interest because variation margin = daily settlement **OTC trades** Daily variation margin provided by a member of a CCP earns interest (cash)
39
40
Trading volume vs open interest
Trading volume : number of contracts traded in a day Open interest : number of contracts utstanding (number of long/short positins)
41
Normal market vs inverted market
* Normal market : futures market where futures price increases with maturity * Inverted market: futures market where futures price decreases with maturity
42
Notice of intention to deliver states : (3)
* How many contracts will be delivered * Where delivery will be made (commodity) * What grade will be delivered (commodity)
43
Rule: pass the notice of intention to deliver on to the party with \_\_
Rule: pass the notice of intention to deliver on to the party with **the oldest outstanding long position (must accept delivery notices)**
44
What happens if you do not meet the margin call ?
Broker closes out the position
45
What are the 3 critical days for delivery
**First notice day** First day a notice f intention to make delivery can be submitted to the exchange **Last notice day** Last t day a notice f intention to make delivery can be submitted to the exchange **Last trading day** Few days before the last notice day
46
To avoid the risk of having to take delivery, a trader with a long position should \_\_\_
To avoid the risk of having to take delivery, a trader with a long position should **close out his contracts before the first notice day**
47
Forward vs futures cntracts (6)
**Forward** * Private contract between two parties * Not standardized * One specified delivery date * Settled at the end of contract * Delivery / final cash settlement takes place * Some credit risk **Futures** * Traded on an exchange * Standardized contract * Range of delivery dates * Settled daily * Contract usually closed out prior to maturity * Virtually no credit risk
48
How do speculators add liquidity to the market?
* By absorbing excess risk that other participants do not want * By buing or selling when no other participants are not available
49
When will open interest : A) Increase by 1 B) Decrease by 1 C) Stay the same
A) Both sides enter a new contract B) Both sides close out an existing position C) One party enters a new contract and one party closes out an existing position
50
Lequel des énoncés suivants décrit le modèle d'évaluation des actifs financiers (CAPM ou MEDAF)? A. Modèle qui détermine le montant du capital nécessaire dans des situations particulières B. Modèle utilisé pour déterminer le prix des contrats futures C. Modèle utilisé pour le calcul du rendement d'un actif à l’aide du rendement d'un indice boursier D. Modèle utilisé pour déterminer la volatilité d'un indice boursier
C

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