lecture 10

Question 1

what is a short?

Answer 1

to sell

i.e. a commitment to make delivery

Question 2

what is shorting used by producers for?

Answer 2

to hedge an output

protects against price decrease

Question 3

what is a long?

Answer 3

to buy

i.e commitment to take delivery

Question 4

what is a long used by users for?

Answer 4

to hedge an input

i.e. to protect against price increase

Question 5

what is a margin?

Answer 5

the amount of money or collateral deposited by a client with his broker or by a broker to the clearing house for the purpose of insuring performance on an open futures contract or short options position

Question 6

what is an initial margin?

Answer 6

fund deposited by a customer as security at the time a futures market position is established to guarantee contract fulfilment

Question 7

what is a maintenance margin?

Answer 7

level of funds that must be maintained per contract in a margin account at all times

Question 8

what is a margin call?

Answer 8

a request from a brokerage firm to a customer or from the clearing house to a clearing member to bring account equity up to minimum levels

Question 9

what is trading volume?

Answer 9

the number of futures contracts (or options on futures contracts) that are traded during a specific time period

Question 10

what is open interest?

Answer 10

the sum of either all short or all long futures contracts in a delivery month, or in all delivery months that are outstanding. these futures contracts where a position in the market has been taken that has not yet been offset or fulfilled by delivery

Question 11

what is a deferred delivery contract?

Answer 11

a DDC

an agreement between producer and buyer whereby the producer agrees to deliver a specific quantity and quality of grain to a buyer at a specific price, location, and future date

i.e. price grain now, deliver later