S3 7.1

Question 1

How many types of Commodities are there?

Answer 1

4 - Agricultural, Livestock, Precious metals and Energy

Question 2

Are Cocoa, Sugar and Coffee considered Agricultural commodities?

Answer 2

Yes, but are a subset called “Soft Agricultural Commodities / Contracts”

Question 3

What is another name for Spot Market?

Answer 3

Cash Market

Question 4

What is a Cash / Spot market?

Answer 4

Actual commodities are traded - not futures

Question 5

Is every aspect (specification) of futures contracts standardized?

Answer 5

Nope - Price and margin are not; Price is determined by supply and demand

Question 6

What makes up the vast majority of futures contracts traded these day?

Answer 6

Financial futures

Question 7

Name 3 types of Financial Futures

Answer 7

1) Debt securities - Treasury Bonds
2) Equity securities - broad-base stock Index
3) Foreign currency

Question 8

How are Interest Rates and Bond Prices correlated?

Answer 8

Interest Rates Increase –> Bond Prices decrease

Interest Rates Decrease –> Bond Prices Increase

Question 9

When does a trader take a long Bond position?

Answer 9

When Interest rates are expected to fall (and Bond prices to increase)

Question 10

When will a trader take a short Bond position?

Answer 10

When Interest Rates are expected to Increase (Bond orices to decrease)

Question 11

Are short-term traders concerned about movements of the broad index?

Answer 11

Nope

Question 12

Are there Price Limits for Stock index futures?

Answer 12

Nope

Question 13

What does BASIS stand for in stock index futures?

Answer 13

Difference between the Stock Index value and the Price of the Stock Index Future

Question 14

What do traders hedge (protect) with stock index futures?

Answer 14

price risk in large and well diversified stock portfolio

Question 15

When is a stock index hedge the most effective?

Answer 15

When there’s close correlation between the index and the price of an individual stock

Question 16

When do we investors use stock index futures to hedge?

Answer 16

When investors want to exchange risk of a specific stock for general Mkt risk

Question 17

Which index includes 30 large cap blue chips including financial, retail, and computer Co’s?

Answer 17

DJIA

Question 18

Which index is capitalization weighted?

Answer 18

SPX

Question 19

Which index includes the most actively traded, and NON-financial domestic and international stocks?

Answer 19

Nasdaq - 100

Question 20

What is the MMI?

Answer 20

Major Market Index (NYSE) - measures performance of largest 20 blue-chips

Question 21

What is a synomym for the MMI?

Answer 21

XMI