AAEC 4317 Exam 1 Review UPDATED
QUESTIONS AND CORRECT ANSWERS
In a forward contract, the party who agrees to buy the good or service is said to take a long
position and the party who agrees to sell the good or service is said to take a short position -
CORRECT ANSWER True
Which one of the following is not a problem with forward contracts? - CORRECT
ANSWER Price Risk
Futures contracts are standardized forward contracts that are traded in organized exchanges. -
CORRECT ANSWER True
"Minimum Price Fluctuation" refers to the minimum amount by which a new "bid" has to
exceed the previous (unsuccessful) "bid" and also the minimum amount by which a new
"ask" has to fall short of the previous (unsuccessful) "ask." - CORRECT
ANSWER True
The "Daily Price Limit" for the CME live cattle futures contracts is set by the exchange to 3
cents per pound. The Dec 2020 CME live cattle futures contract was settled at 115 cents per
pound yesterday. Today, a prospective buyer may place a bid of 111 cents per pound to buy
the futures contract. - CORRECT ANSWER False
The exchange specifies everything of a futures contract except - CORRECT
ANSWER The price
"Offsetting" refers to the activity to eliminate an initial position (long or short) on a futures
contract by selling or buying it back before the expiration date - CORRECT
ANSWER True
A trader can have a short position (sell) in a Futures contract even if s/he doesn't have the
commodity in possession. - CORRECT ANSWER True
, Which one of the followings is not the function of a futures market? - CORRECT
ANSWER Profit maximization
Anyone can trade futures contract directly appearing at the exchange. - CORRECT
ANSWER False
Which one of the following is not a function of Futures Exchanges? - CORRECT
ANSWER Set the prices of futures contracts
If you want to trade futures contracts, you need to become a member of a futures exchange
first. - CORRECT ANSWER False
To become a broker of Futures contract, one needs to become a full member of the exchange
first. - CORRECT ANSWER True
To start an FCM firm, one needs to become a member of the exchange first. - CORRECT
ANSWER False
If you want to buy 1 Dec NYBOT cotton futures contract (50,000 lbs per contract) at price 60
cents per pound, you have to pay $30,000.00 at the time of purchasing the contract. -
CORRECT ANSWER False
Maintenance margin of certain futures contracts can be higher than the initial margin. -
CORRECT ANSWER False
A futures trader bought 1 Dec 2020 CME live cattle futures contract (40,000 lbs.) at 125.50
cents per pound. The next day the futures' price increases to 127.50 cents per pound. The
associated FCM will adjust the trader's account by a variation margin of - CORRECT
ANSWER $800
The initial margin and maintenance margin for the CBOT corn futures are $1,350 and $1,100
per contract, respectively. A trader sold 1 Sep CBOT corn futures contract (5,000 bushels) at
363.00 cents/bushel and deposited the initial margin. The next day, the futures contract settled
QUESTIONS AND CORRECT ANSWERS
In a forward contract, the party who agrees to buy the good or service is said to take a long
position and the party who agrees to sell the good or service is said to take a short position -
CORRECT ANSWER True
Which one of the following is not a problem with forward contracts? - CORRECT
ANSWER Price Risk
Futures contracts are standardized forward contracts that are traded in organized exchanges. -
CORRECT ANSWER True
"Minimum Price Fluctuation" refers to the minimum amount by which a new "bid" has to
exceed the previous (unsuccessful) "bid" and also the minimum amount by which a new
"ask" has to fall short of the previous (unsuccessful) "ask." - CORRECT
ANSWER True
The "Daily Price Limit" for the CME live cattle futures contracts is set by the exchange to 3
cents per pound. The Dec 2020 CME live cattle futures contract was settled at 115 cents per
pound yesterday. Today, a prospective buyer may place a bid of 111 cents per pound to buy
the futures contract. - CORRECT ANSWER False
The exchange specifies everything of a futures contract except - CORRECT
ANSWER The price
"Offsetting" refers to the activity to eliminate an initial position (long or short) on a futures
contract by selling or buying it back before the expiration date - CORRECT
ANSWER True
A trader can have a short position (sell) in a Futures contract even if s/he doesn't have the
commodity in possession. - CORRECT ANSWER True
, Which one of the followings is not the function of a futures market? - CORRECT
ANSWER Profit maximization
Anyone can trade futures contract directly appearing at the exchange. - CORRECT
ANSWER False
Which one of the following is not a function of Futures Exchanges? - CORRECT
ANSWER Set the prices of futures contracts
If you want to trade futures contracts, you need to become a member of a futures exchange
first. - CORRECT ANSWER False
To become a broker of Futures contract, one needs to become a full member of the exchange
first. - CORRECT ANSWER True
To start an FCM firm, one needs to become a member of the exchange first. - CORRECT
ANSWER False
If you want to buy 1 Dec NYBOT cotton futures contract (50,000 lbs per contract) at price 60
cents per pound, you have to pay $30,000.00 at the time of purchasing the contract. -
CORRECT ANSWER False
Maintenance margin of certain futures contracts can be higher than the initial margin. -
CORRECT ANSWER False
A futures trader bought 1 Dec 2020 CME live cattle futures contract (40,000 lbs.) at 125.50
cents per pound. The next day the futures' price increases to 127.50 cents per pound. The
associated FCM will adjust the trader's account by a variation margin of - CORRECT
ANSWER $800
The initial margin and maintenance margin for the CBOT corn futures are $1,350 and $1,100
per contract, respectively. A trader sold 1 Sep CBOT corn futures contract (5,000 bushels) at
363.00 cents/bushel and deposited the initial margin. The next day, the futures contract settled
