Futures Final Exam UPDATED Questions
and CORRECT Answers
A trader who is long 5 corn futures contract (5,000 bushels per contract) at $4.20 offsets her
position at $4.45. Assuming commission is $50 per contract per round turn, what is her gain
or loss on the trade? - CORRECT ANSWER✔✔- Gain of $6,000
Market Orders to sell futures contracts are matched against the best or highest limit order bids
- CORRECT ANSWER✔✔- True
Hedging margin is set at the same level as a speculator's - CORRECT ANSWER✔✔-
maintenance margin
The process by which the margin accounting system is settled each trading day is referred to
as - CORRECT ANSWER✔✔- Mark-To-Market
A speculator's initial margin level can never exceed his maintenance level - CORRECT
ANSWER✔✔- False
A trader who is long 10 corn futures contract (5,000 bushels per contract) at $5.00 offsets her
position at $4.80. Assuming commission is $50 per contract per round turn, what is her gain
or loss on the trade? - CORRECT ANSWER✔✔- Loss of $10,500
A high stocks-to-use ratio is typically associated with higher than average cash prices -
CORRECT ANSWER✔✔- False
The U.S. government allows futures trading because - CORRECT ANSWER✔✔- it provides
the important economic benefits of price discovery and hedging
In futures trading it is possible to initially sell a commodity you don't own - CORRECT
ANSWER✔✔- True
, Once you've bought a futures contract what happens next? - CORRECT ANSWER✔✔-
Either you take delivery of the commodity or you offset your position by selling a futures
contract for the same delivery period.
A trader who is short 2 corn futures contract (5,000 bushels per contract) at $6.40 offsets her
position at $6.30. Assuming commission is $50 per contract, what is her gain or loss on the
trade? - CORRECT ANSWER✔✔- Gain of $900.
Futures trading is said to be a zero sum game because - CORRECT ANSWER✔✔- For
every winning trade there has to be a losing trade
Long-hedgers benefit from a strengthening of the basis - CORRECT ANSWER✔✔- False
What is the difference between speculating and hedging? - CORRECT ANSWER✔✔-
Speculators have no cash position.
Futures contracts are standardized in terms of quality, quantity and delivery time -
CORRECT ANSWER✔✔- True
Futures investments are said to provide leverage because - CORRECT ANSWER✔✔- the
initial investment capital is far less than the face value of the investment itself
A hog farmer buying corn for feed could use what type of futures hedge to lock in his input
price? - CORRECT ANSWER✔✔- a long-hedge
Basis is defined as - CORRECT ANSWER✔✔- local cash price less futures price.
A futures contract is - CORRECT ANSWER✔✔- a legal contract calling for the acceptance
or delivery of a commodity of a specific quality and quantity to a specific delivery point on or
by some subsequent data
After a corn farmer has hedged his cash position he is left with - CORRECT ANSWER✔✔-
basis risk
and CORRECT Answers
A trader who is long 5 corn futures contract (5,000 bushels per contract) at $4.20 offsets her
position at $4.45. Assuming commission is $50 per contract per round turn, what is her gain
or loss on the trade? - CORRECT ANSWER✔✔- Gain of $6,000
Market Orders to sell futures contracts are matched against the best or highest limit order bids
- CORRECT ANSWER✔✔- True
Hedging margin is set at the same level as a speculator's - CORRECT ANSWER✔✔-
maintenance margin
The process by which the margin accounting system is settled each trading day is referred to
as - CORRECT ANSWER✔✔- Mark-To-Market
A speculator's initial margin level can never exceed his maintenance level - CORRECT
ANSWER✔✔- False
A trader who is long 10 corn futures contract (5,000 bushels per contract) at $5.00 offsets her
position at $4.80. Assuming commission is $50 per contract per round turn, what is her gain
or loss on the trade? - CORRECT ANSWER✔✔- Loss of $10,500
A high stocks-to-use ratio is typically associated with higher than average cash prices -
CORRECT ANSWER✔✔- False
The U.S. government allows futures trading because - CORRECT ANSWER✔✔- it provides
the important economic benefits of price discovery and hedging
In futures trading it is possible to initially sell a commodity you don't own - CORRECT
ANSWER✔✔- True
, Once you've bought a futures contract what happens next? - CORRECT ANSWER✔✔-
Either you take delivery of the commodity or you offset your position by selling a futures
contract for the same delivery period.
A trader who is short 2 corn futures contract (5,000 bushels per contract) at $6.40 offsets her
position at $6.30. Assuming commission is $50 per contract, what is her gain or loss on the
trade? - CORRECT ANSWER✔✔- Gain of $900.
Futures trading is said to be a zero sum game because - CORRECT ANSWER✔✔- For
every winning trade there has to be a losing trade
Long-hedgers benefit from a strengthening of the basis - CORRECT ANSWER✔✔- False
What is the difference between speculating and hedging? - CORRECT ANSWER✔✔-
Speculators have no cash position.
Futures contracts are standardized in terms of quality, quantity and delivery time -
CORRECT ANSWER✔✔- True
Futures investments are said to provide leverage because - CORRECT ANSWER✔✔- the
initial investment capital is far less than the face value of the investment itself
A hog farmer buying corn for feed could use what type of futures hedge to lock in his input
price? - CORRECT ANSWER✔✔- a long-hedge
Basis is defined as - CORRECT ANSWER✔✔- local cash price less futures price.
A futures contract is - CORRECT ANSWER✔✔- a legal contract calling for the acceptance
or delivery of a commodity of a specific quality and quantity to a specific delivery point on or
by some subsequent data
After a corn farmer has hedged his cash position he is left with - CORRECT ANSWER✔✔-
basis risk
