lecture 9

Question 1

what is hedging?

Answer 1

protection against a price movement of a physical commodity

Question 2

7 attributes of a futures market

Answer 2

Price discovery

price risk management

liquidity

efficiency

zero sum gain

hedgers

speculators

Question 3

arbitrage definition

Answer 3

the simultaneous purchase of cash, futures, or options in a different market in order to profit from a price disparity

i.e. buy low in one market and sell high in another market

Question 4

does commodity exchange engage in trading?

Answer 4

no

Question 5

what is a futures contract?

Answer 5

an agreement to deliver (sell) or to accept delivery (buy) of a specific commodity, quality and quantity and a specific price, time and place.

Question 6

are futures contracts legally binding?

Answer 6

yes

Question 7

are futures contacts always fulfilled?

Answer 7

No, most are offset prior to maturity

Question 8

how do contract month codes work?

Answer 8

(2 letter product code)(1 letter month code)(2 number year)