Commodity and Financial Futures Contracts and Specifications

Question 1

Which of the following factors affects the basis relationship between a futures price and a given cash market price?

Answer 1

Uncertainty concerning the quantity and quality of future production.
[B] Changes in readily obtainable supplies of a commodity.
[C] Changes in the demand for specific grades of a commodity in the cash market.

Question 2

The difference between the current cash price of a commodity and the futures price of the same commodity is described as Basis by the NFA.

Answer 2

True

Question 3

Any stock index futures contract that remains open at the end of the last trading date will be settled in cash.

Answer 3

True.

Stock index futures contracts don’t expire worthless. They are settled for their value in cash, whatever the value.

Question 4

Margin requirements are not standardized.

Answer 4

True.

Margin requirements vary by the risk involved. Margin requirements are established by the exchanges and vary from contract to contract. These requirements can change from day to day.

Question 5

Who normally decides the delivery time of agricultural products such as grain futures contracts?

Answer 5

Such times are normally decided upon by the exchange.

Question 6

Though delivery of actual commodities takes place against an order in only 3% of grain futures contracts, the ability to deliver is required:

Answer 6

to maintain an economic relationship between cash and futures contracts traded.

Question 7

Which of the following most often influences Treasury Bill futures?

Answer 7

Open market operations.

Question 8

Which of the following is the most appropriate answer concerning the basis risk of the NYSE Composite and S & P 500 futures relative to a specific stock or portfolio? It depends on the:

Answer 8

relationship of the price of the individual stock to the stock index and the relation of the futures price to the stock index.

Question 9

When does transfer of ownership rights occur when speaking of futures trading?

Answer 9

Ownership rights are transferred when receipt of the delivery instrument is made to the long and payment is made.

Question 10

When making the physical delivery of a commodity for a futures contract, the party delivering informs the long taking delivery of the fact that the commodity is of a higher quality than that specified in the contract. The party delivering the higher quality commodity cannot expect any premium because they are responsible for delivering the physical goods and the contract must be filled.

Answer 10

False.

It is generally accepted that upon delivery, if the quality of the commodity being delivered is greater than the quality in the contract, there will be a premium. The same goes for quality that is less than that specified and a discount.

Question 11

A soybean farmer in Iowa sells futures short and later decides to deliver the soybeans rather than offset the future in the market. This action is allowed.

Answer 11

True

Question 12

To use futures contracts to hedge against rising prices in the underlying commodity, the hedger should go long the futures contract.

Answer 12

True

Question 13

Interest rate fluctuations are least affected by:

Answer 13

Unemployment

Question 14

The development of specialized futures markets in commodities was due to the need for all of following except:

Answer 14

D - 
[A]   Greater amounts of capital
[B]	Greater amounts of credit
[C]	Methods to cope with credit defaults
[D]	Restrict speculation in certain parts of the country