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Series 3 Exam Prep questions and answers already passed 2024
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Series 3 Exam Prep questions and answers already passed 2024
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Series 3 Exam PrepHow does the clearing house determine which customer will take delivery
upon receiving notice of intent to deliver? - correct answer ✔May be
assigned to the buyer with the:
- oldest net long position
What makes two options in the same class? - correct answer ✔Options in
the same class must be of the same type (call or put) and the same
underlying commodity.
What is true about "basis grade"? (1) - correct answer ✔The exchange will
allow a seller to deliver a commodity of a grade that is below the standard.
What is true about "basis grade"? (2) - correct answer ✔Basis grade is the
minimum standard of quality that can be considered a "good" delivery.
What is true about "basis grade"? (3) - correct answer ✔The seller always
performs inspection, and the price will change based on if the quality is
considered to be above or below the basis grade.
Which of the following is defined as a member of organization employee who
executes orders for clients on the trade floor? - correct answer ✔Floor broker
Contango market is described as which of the following? - correct answer
✔Premium Market, Upward Market, Normal Market, Carrying Charge Market.
Backwards market is described as which of the following? - correct answer
✔Discount market, Downward Market, Inverted Market.
,what occurs when an exchange requires that the buyer accept delivery of a
commodity once notice has been assigned? - correct answer ✔Stopped
delivery notice
With regard to a clearinghouse marking to the market, which of the following is
TRUE? - correct answer ✔If no trades have been placed, the settlement
price is determined by taking the midpoint in the spread between the bid and
ask price.
The contract price is taken from the exchange's published settlement price as
of close on that trading day.
Bear call spread - correct answer ✔Sell the call with lower strike price and
buy the call with higher strike price.
Bull call spread - correct answer ✔Buy the call with the lower strike price and
sell the call with the higher strike price.
What is true regarding the characteristics of a spread? - correct answer
✔Involves two options in the same class with different exercise prices and/or
different expiration months.
Which of the following could be an example of a short hedger? - correct
answer ✔pure producer, like a cattle ranch owner
Bear put spreads - correct answer ✔Debit put spreads,
and looking to profit from a decrease in a futures contract price.
,Increases in initial and maintenance margin requirements will be applied to
new AND open contract positions. - correct answer ✔o TRUE
- Minimal maintenance margins are established in part based on historical
volatility calculations. - correct answer ✔o TRUE
- Initial margin requirements are established in part based on value at risk
(VAR) - correct answer ✔o TRUE
The margin amounts are set by the futures commission merchant - correct
answer ✔o FALSE, they are set by the Exchange's board of directors.
A bone fide hedger must - correct answer ✔purchase or sell the actual
commodity hedged with futures.
which of the following best describes hedging? - correct answer ✔involves
assuming OPPOSING positions in the cash and futures markets. (long the
basis (cash) and sell the futures)
True or False: Margin is a down payment. - correct answer ✔False, margin
represents earnest money or a performance bond.
The margin must be deposited: - correct answer ✔prior to the execution of
the transaction.
true or false: Clearing members must always know if their customers'
accounts are fully margined. - correct answer ✔True
True or false: Speculators avoid thin markets. - correct answer ✔True
, Thin markets: - correct answer ✔involve a risk of not being able to effectively
offset positions.
market volatility and market risk - correct answer ✔are directly proportional.
Size, grade, and delivery location are set by - correct answer ✔The
exchange
basis price equals - correct answer ✔cash price minus futures price
changes in margin requirements are retroactive, meaning: - correct answer
✔They are applied to new and open positions
Minimum initial margin is set by - correct answer ✔The board of directors of
the exchange
Only speculators have - correct answer ✔the higher initial and maintenance
margin
True or false: futures contracts are settled by cash settlement or delivery at
expiration. - correct answer ✔True
The most important economic function or a futures market is to - correct
answer ✔reduce price risk
A hedge does not provide perfect protection because - correct answer ✔the
basis may change
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