what are futures contracts standardized in terms ofquality
quantity
delivery timewhy is futures trading said to be a zero sum hamefor every winning trade there has to be a losing tradethe maximum price range by which the price of a commodity futures contract can change in any one trading daydaily price limitt or f: the main reason to hedge is to guarantee higher profits every yearfalset or f: gold and silver futures markets obey the cost-of-carry modeltruet or f: basis tends to follow spreads because of the cost-of-carry model and convergencetruewhat type of elevator contract removes downside price risk, but leaves the farmer with risk of not potentially having enough grain to deliver at harvest timeforwardhow would you spread a short march futures position to a short may futures positionbuy march futures and sell march futurest or f: cost of carry is the term that means cash grain is bought and immediately resoldfalsegoing long-the-basis will be profitable if
- futures spreads are inverted
- the change in basis is greater than the storage costs
- the sell basis is lower than the adjusted buy basis
- the handling margin is positivethe change in basis is greater than the storage costst or f: an inverted market structure occurs when distant future contracts are trading at higher prices than nearby futures contractsfalset or f: short-the-basis strategy tends to be profitable when markets are invertedtruecash grain is bought and immediately resoldback to backt or f: grain flows from high basis regions to low basis regionfalsecost-of-carry arbitrage ensures
- the level of margins required by futures exchanges is not too small
- that the difference in cash and futures prices reflect the cost of storing grain over time
- the quantity of grain that an elevator can store is profitable
- that farmers market their grain at profitable levelsthat the difference in cash and futures prices reflect the cost of storing grain over timewhat type of contract charges a fee to the farmer and is used by elevators to form short-the-basis positionsprice laterthe difference between an elevator's local cash price bid to farmers for grain and the futures price:buy basisis it possible for a grain merchandiser to buy cash grain at a high price and sell it later at a lower price and still make a profityes - merchandisers make a profit from changes in the basisexercising a long put option gives you what positionshort futures positionto offset an existing long call position, an option trader must take what actionsell a callt or f: a call option is out-of-the money when the futures price is below the options strike pricetruet or f: put options are said to be at-the-money when futures are trading at the put's option's strike pricetruet or f: the seller of a call option has the right to sell futures at the strike pricefalsehow would a corn farmer concerned about falling corn prices for a price floorbuy corn put optionsif you sell puts as a speculator - you are betting the underlying futures willnever fall below the put's strike pricein-the-money put option premiums increase if:the underling futures price decreasest or f: the greater the time to an option's expiration the higher its valuetruehigher futures price volatility tends to lead to:both higher put and call premiumt or f: as a speculator if i think that corn prices will increase i should be able to make money by buying a put optionfalseto form a price ceiling, what would a hedger have to dobuy calls against an anticipated cash purchaset or f: the buyer of a put option has the right to sell futures contracts at the strike pricetruet or f: traders who only offset options positions are forced to take a position in the underlying futures contractfalseif you sell a put option and receive a premium of 30 cents per bushel, what's the most you can loseyour loss in unlimitiedt or f: a trader who buys options is not required to post an initial margin position with a brokertruet or f: the strike price of an options contract does not changetruet or f: if an option still has time value a trader will typically make more money by offsetting rather than exercisingtruewhat speculative strategy has the most riskselling at the money callsthe difference between the local cash price of grain and the futures pricebasisthe difference in the price of two futures contracts monthsspreadthe costs associated with holding graincost of carrytype of basis established when cash grain is sold and futures are boughtsell basistype of spread that indicates the price of the nearby futures month is lower than the price of a deferred monthcarrythe amount the elevator factors into its price to the farmer for handling the bushelshandling marginthe process that utilizes basis trading to generate margins in the course of buying and selling grainmerchandisingtype of basis established when cash grain is bought and futures are soldbuy basisa type of spread that indicates the price of the nearby futures month is higher than the price of a deferred monthinversionthe difference between the buy and sell basisgross marginthe practice of offsetting a cash transaction with an opposite futures transaction in order to minimize price riskhedgingt or f: short hedgers benefit from a strengthening of the basistruea hog farmer setting a hedge before purchasing corn for feed in his local cash market is an example oflong hedgethe process by which traders accounts are settled on a daily basismarked to markett or f: in futures trading it is possible to initially sell a commodity you don't owntruewhy are futures investments said to provide leveragethe initial investment capital is far less than the face value of the investment itselft or f: futures contracts for different delivery periods trade simultaneously at a futures exchangetrueto buy a futures contract is to promise toaccept deliverywho is depicted as a statue on top of the chicago board of trade buildingceres, the roman goddess of agricultureto offset a short futures position a trader mustbuy and equal number of contracts for the same commodity, delivery month, at the same exchangea very low stock to use number is associated withhigh cash pricesthe process by which the market reflects a fair market price that is visible to all market participantsprice discoveryt or f: futures trading is said to be a zero-sum game because the quantity of hedged trades equal the quantity of speculative tradesfalselocal cash price less futures pricesbasisa buyer of futures contracts to every seller and a seller of futures contracts to every buyerclearinghousewhy does the U.S. government allow futures tradingit provides the important economic benefits of price discovery and hedgingthis order instructs your broker to buy and sell a certain number of commodity futures contracts as soon as possible at the best possible pricemarketwhat does an elevator do to turn a cash transaction into a basis transactiontake an opposite position in futures marketthe difference between an elevators local cash price bid to farmers for grain and the futures price isbuy basist or f: if efficient markets hypothesis holds speculators cannot make consistent profits trading futurestruewhat promotes full carry in commodity marketsease of storaget or f: basis tends to follow spreadstruethe difference in an elevators sell and buy basisgross margina carry market structure with positive futures spreads encourages merchandisers tostore grain and go lone the basist or f: it is possible for a basis trader to make profitable margins while guying grain at relatively high prices from farmers and later selling grain at relatively lower prices to buyerstruea poultry firm setting a hedge prior to purchasing corn in its cash market to feed its chickens is an example oflong hedgehow would the seller of an output form a price floorbuy putst or f: intrinsic value of options can never be negativetruea call option is in the money when the market price of the underlying future contract isabove the strike pricewhen an option still has time value what would a trader typically dooffset not exerciseto offset a short december call you mustsell a dec callan option writer earnthe initial premium when an option is soldt or f: the premium of an options contract does not changefalsein the money call option premiums increase iffutures price decreasest or f: traditional grain options contracts have the same delivery months and contract size as grain futures contractstruet or f: buying at the money put options is risker than selling at the money call optionsfalsea put option is out of the money ifthe futures price is greater than the options strike priceexercising a long put option gives youa short futures positointo offset an existing long put position, an option trader must take which of the following actionssell a putthe futures prices less the options strike priceintrinsic valehigher volatility increasescall and put premiumst or f: the buyer of a call option has the right to sell futures at the strike pricetrue
