S3 7.4B

Question 1

Formula for Percentage Margin

Answer 1

Margin requirement / Market price

Question 2

Formula for Percentage of Profit

Answer 2

Profit / Margin Deposit

Question 3

Formula for # Contracts needed to hedge using an Index

Answer 3

Portfolio value (to be hedged) / Index Value

Question 4

Inter-Commodity Spread

Answer 4

Buy/Sale related commodities, same month, same exchange

Question 5

Inter-Delivery Spread

Answer 5

Buy/Sell Same commodity, Diff delivery month, same exchange

Question 6

Inter-Market Spread

Answer 6

Buy/Sell same commodity, Same delivery month, Diff exchange

Question 7

Intra-Market Spread

Answer 7

Buy/Sell same or Diff commodity, same exchange

Question 8

Opposite of Contango

Answer 8

Backwardation

Question 9

What makes future contracts more expensive?

Answer 9

Carrying charges: storage, insurance, transportation, labor/handling and short-term interest rates) + chg in actual price of commodity

Question 10

When does backwardation take place?

Answer 10

When we have a short cash market supply

Question 11

What is a futures Bull spread (long spread)?

Answer 11

Long nearby contract, short deferred contract

Question 12

What basis change makes a bull spread profitable?

Answer 12

Basis narrows / weakens makew Bull spread profitable

Question 13

What does a Bull spread want the market to do?

Answer 13

Nearby increase more than deferred –> narrow spread

Question 14

Bear / Short spread?

Answer 14

Short nearby contract and long the deferred

Question 15

What basis change makes a bear spread profitable?

Answer 15

Basis widens / strengthens makes bear spread profitable

Question 16

What does a Bear spread want the market to do?

Answer 16

nearby (short) price to decline faster than long/deferred –> spread widens

Question 17

Another name for a normal commmodities market (in contango)

Answer 17

Carrying charge market