Exam (elaborations)
series 3 7 questions and answers certified 2024
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series 3 7 questions and answers certified 2024
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series 3A futures contract is legally binding, but it does not always require the original
buyer or seller to take or make delivery.
A. True
B. False - correct answer ✔A) An open long or short futures position is an
obligation to take or make delivery of the actual commodity if the position is
held until the contract's delivery date. Most contracts are offset (closed) prior
to delivery.
Forward contracts differ from futures contracts in that
a) they are nonstandardized
B) they are not regulated by the CFTC
C) their prices are not set in a competitive market
D) all of the above - correct answer ✔D) Forward contracts are unique and
nonstandardized and are direct obligations between a particular buyer and
seller (with no clearing house in between). Nearly all forward contracts are
delivered, unlike the futures markets, where most transactions are offset
rather than delivered. Forward contracts are not currently regulated by the
CFTC.
To offset a long futures position, a trader must
A) liquidate the purchase of a (long) futures contract by selling an equal
number of contracts of the same delivery month on the same exchange
B) liquidate the purchase of a (long) futures contract by selling an equal
number of contracts of the same delivery month on any exchange
C) recognize that only short positions can be offset
D) never transfer the obligation to others - correct answer ✔A) Liquidating a
long position offsets an open futures position. To liquidate a long position, a
,customer must sell the same contract he is long; to liquidate a short position,
a customer must buy the contract he is short.
The efficiency of a futures market is primarily determined by the
A) number of active traders
B) leadership skills of exchange officials
C) availability of cash supplies
D) required margin amounts - correct answer ✔A) Market efficiency depends
on how well prices reflect available information. The greater the number of
active participants, the more efficient the market. Choices B and C present
factors that affect prices—not efficiency. Margin requirements have little effect
on market efficiency.
The price of a futures contract is determined by
A) the NFA
B) the CFTC
C) prearranged agreements between the floor brokers
D) open bids and offers on the exchange - correct answer ✔D) Futures
prices are established on futures exchanges.
Hedging is using a futures contract (or a futures option) to reduce risk that you
normally would have in relation to a particular commodity.
A. True
B. False - correct answer ✔A) Hedgers look to protect—to either protect
crops against a decline in value or, as a buyer, insulate from a significant rise
in prices. Futures may be used to hedge the risk in both of these situations.
,Hedging is making money in the futures contract to offset what you are losing
in what you own or will acquire.
A) True
B) False - correct answer ✔A) The money hedgers make offsets some or all
of the losses they may experience.
A futures contract is a legally binding agreement between a seller and buyer
enforcing the delivery of a specified commodity, index, currency, or underlying
instrument.
A) True
B) False - correct answer ✔A) A futures contract is a legally binding
agreement that delineates the future delivery of a commodity or other
instrument. Keep in mind that these contracts are typically offset by another
contract or cash settled rather than delivered.
A buyer of a futures contract is called
A. hedging
B. speculating
C. long
D. short - correct answer ✔C) Buying is synonymous with being long. Selling
is being short. This is true for futures and options as well as stocks and bonds.
Size, grades, and delivery locations of futures contracts are set by
A) the NFA
B) the CFTC
C) the U.S. Department of Agriculture
D) the exchange where the contract is traded - correct answer ✔D) The
exchanges set the standards and enforce all the terms and conditions of all
futures contracts traded on their platforms.
, Sugar is $1,120 per point
Use the following values from the previous table to answer the question
below.
Sugar is $1,120 per point
Lean hogs is $400 per point
Corn is $50 per point (5,000 bu; move over 2 decimal places)
What are the dollar values of the following commodities?
A) Sugar at 7.22
B) Lean hogs at 62.35
C) Corn at 179.25
D) Sugar down .65 - correct answer ✔A. $8,086.40
B. $24,940
C. $8,962.50
D. $-728
Fundamentally, there is no difference between commodities spot and futures
prices.
A. True
B. False - correct answer ✔B) Although both prices respond to similar
influences, a cash price values a specific lotof a commodity at a specific place
(the spot) and time; a futures price values a standardized (rather than specific)
quantity and qualityof a commodity for future delivery at a designated delivery
point.
Which of the following is NOT part of carrying charges?
A. Storage
B. Insurance
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