Chapter 2 - Futures Market Flashcards
CFMA is also called what in U.S. ____ and what in Great Britian_____?
Single stock futures; universal futures
What act permitted or allowed futures trading on individual stocks in the U.S.?
Commodity Futures Modernization Act of 2000 (CFMA)
specifies what, where, when for delivery? forwards or futures?
Futures
what is it called when in trading room, traders literally “cry out” their bids to locate another trader in the PIT?
Open Outcry
Electronic trading represents over _____% of futures contracts trading.
50
________:
- honor obligations (but only to clearinghouse not to other traders)
- exchanges uses a futures clearinghouse
- may be part of the exchange or separate entity
- clearing arrangements vary due to CFMA 2000
- are ‘perfectly hedged’, holding no own futures position
Clearinghouse
good-faith deposit (basically a downpayment) made to DERIVATIVES trader with a broker, posted in cash, letter of credit, or Treasury instruments.
minimize the possibility of loss thru default on a contract.
Margin
a maintenance margin is generally about _____% of initial margin.
75
what is the process which traders are required to realize (pay) any losses in cash immediately. the losses are usually deducted from margin deposit.
Daily Settlement
another name for daily settlement?
Marked-to-the-Market
the process that realizes any gains and losses in cash on the day they occur, in the futures market.
Marking-to-Market
the benchmark against which all accounts are marked-to-market
Settlement Price
what are the 3 ways to close a futures position?
- Delivery or cash settllement
- Offset or reverse trade
- Exchange-for-physical (EFP) or ex-pit transaction (p.26)
____% to _____% of all Futures are NOT delivered?
97; 98
True or false. Exchange traded derivatives tend NOT to be more liquid?
False
_____ seek to make risk-free profits by capitalizing on market inefficiency (remember Macy vs. Nordstrom shoe story)
Arbitrageurs
_____ buy and sell in order to profit from exchange rate fluctations
Speculators
engage in futures contracts to protect currency value and reduce risk (risk transferrance)
Hedgers
what 3 user groups need does futures market meet?
- those who want price discovery
- those who use for speculation
- those who use for hedging
two main social functions of futures markets
- price discovery
2. hedging
Futures Markets Levels of Regulation (Market Regulators)
- Brokers
- Exchanges/Clearinghouses
- National Futures Association (NFA)-industry nonfed/self-reg body
- Commodity Futures Trading Commission (CFTC) - Federal
Market regulators enforce rules to
- prevent fraud
- prohibit dishonorable conduct
- prevent defaults on contract obligations
CFTC oversights 3:
- futures exchanges
- clearinghouses
- NFA
