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Series 3 Exam b questions and answers already passed 2024
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Series 3 Exam b questions and answers already passed 2024
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Series 3 ExamActuals - correct answer ✔The physical, or cash, commodity. The goods
underlying a futures contract.
Arbitrage - correct answer ✔The purchase of a commodity against the
simultaneous sale of a commodity to profit from unequal prices. The two
transactions may take place on different exchanges, between two different
commodities, in different delivery months, or between the cash and future
markets.
Basis - correct answer ✔The difference between cash price and the futures
price of a commodity. CASH-FUTURES=BASIS. Basis is also used to refer to
the difference between prices at different markets or between different
commodity grades.
Bear Spread - correct answer ✔Sale of near-month futures contracts against
the purchase of deferred month futures contracts. Expect price to decline
more in near month relative to the distant month.
EX: Sell December contract and buy the more distant March Contract.
Beta - correct answer ✔A measure correlating stock price movement to the
movement of an index. Beta is used to determine the number of contracts
required to hedge with stock index futures or futures options.
Bull Spread - correct answer ✔The purchase of near-month futures contracts
against the sale of deferred-month futures contracts. Expect price increase
more in near month relative to the distant month.
,Limited Risk Spread - correct answer ✔A type of bull spread that is placed
only when the market is near full carrying charges.
Call - correct answer ✔The period at market opening or closing during which
futures contract prices are established by auction.
Call Option - correct answer ✔A contract giving the buyer the right to
purchase something within a specified time period at a specified price. The
contract also obligates the seller to deliver, if the buyer exercises.
Carrying Charges - correct answer ✔The cost of storing a physical
commodity, consisting of interest, insurance, and storage fees.
Usually reflected in the difference between Futures prices for different delivery
months.
Cash Commodity - correct answer ✔A physical commodity, as distinguished
from a futures contract, which calls for the delivery of the "cash commodity"
during the delivery period.
Clearinghouse - correct answer ✔An Agency associated with an exchange
which guarantees all trades, thus assuring contract delivery and/or financial
settlement. The clearinghouse becomes the buyer for every seller, and the
seller for every buyer.
Clearing Member - correct answer ✔A clearinghouse member responsible
for executing client trades. Clearing members also monitor the financial
capability of their clients by requiring sufficient margins and position reports.
, Commodity Futures Trading Commission (CFTC) - correct answer ✔a
federal regulatory agency with exclusive jurisdiction over all futures trading.
The CFTC is empowered to regulate (among others) the futures exchanges,
futures commission merchants and their agents, floor brokers, and traders.
The agency was created by the Commodity Exchange Act of 1974.
Commodity Pool Operator (CPO) - correct answer ✔An individual or firm
who accepts funds, securities, or property for trading commodity futures
contracts, and combines customer funds into pools. The larger the
account/pool, the more staying power the CPO and his clients have. They
may be able to last through a dip in prices until the position becomes
profitable. CPO's must register with the CFTC, and are closely regulated.
Commodity Product-Spread - correct answer ✔The simultaneous purchase
(or sale) of a commodity and the sale (or purchase) of the products of that
commodity.
Crush Spread - correct answer ✔A type of Commodity Product-Spread
EX: Buying soybeans and selling soybean oil and meal.
Crack Spread - correct answer ✔A type of Commodity Product-Spread
EX: Buying crude oil and selling gasoline and heating oil.
Commodity Trading Advisor (CTA) - correct answer ✔A person or company
who analyzes the markets and recommend trades. CTAs are required to be
registered with the CFTC and to belong to the NFA.
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