Week 7: Mechanics of futures markets\

Question 1

what can you get futures contracts on?

Answer 1

• underlying assets like

commodities, Treasury bonds, Corporate bonds, stock indices

Question 2

T/F, all futures contracts lead to delivery

Answer 2

• False

- Most traders choose to closeout positions before the delivery date

Question 3

How do investors close out a futures contract?

Answer 3

• Close out the contract by taking the opposite position.

- e.g. if you have a buy a long position you sell a short position and vice versa

Question 4

What is asset quality?

Answer 4

• assets are given a grade based on its quality
• Financial assets are usually independent of quality; however, bonds can
  have grades associated to them

Question 5

Contract size

Answer 5

• specifies the amount of the asset for one contract. Some

- single contracts may be extremely large

Question 6

delivery arrangements

Answer 6

• specifies the place of delivery of the underlying asset

Question 7

What are price limits and position limits?

Answer 7

• most contracts limit daily price movements.

- If a price goes down, the contract is said to limit down, and a contract price moving up is limit up

Question 8

What is a limit move?

Answer 8

• A limit move is a move in either direction equal to the daily price limit