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    A long position in futures contracts refers to the purchase of future contracts. Futures contracts entail an obligation rather than an option. As expiration approaches, the futures price converges with the spot price of the underlying asset. Profits and losses from futures contracts are posted daily through the marking to market process. Speculators in futures contracts are not seeking to protect existing commodity holdings like hedgers. Most futures contracts are settled through cash or offset rather than physical delivery of the underlying asset due to lower costs and ease.

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    A long position in futures contracts refers to the purchase of future contracts. Futures contracts entail an obligation rather than an option. As expiration approaches, the futures price converges with the spot price of the underlying asset. Profits and losses from futures contracts are posted daily through the marking to market process. Speculators in futures contracts are not seeking to protect existing commodity holdings like hedgers. Most futures contracts are settled through cash or offset rather than physical delivery of the underlying asset due to lower costs and ease.

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    2K views3 pages

    MCQS Investment

    Uploaded by

    aashir ch
    A long position in futures contracts refers to the purchase of future contracts. Futures contracts entail an obligation rather than an option. As expiration approaches, the futures price converges with the spot price of the underlying asset. Profits and losses from futures contracts are posted daily through the marking to market process. Speculators in futures contracts are not seeking to protect existing commodity holdings like hedgers. Most futures contracts are settled through cash or offset rather than physical delivery of the underlying asset due to lower costs and ease.

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    of 3

    (1) According to future contracts, the long position states the

    a) Purchase of forward contracts


    b) Purchase of future contracts
    c) Sales of future contracts
    d) Sales of forward contracts
    (2) Which of the following is not correct concerning futures contracts?
    a) Entails an obligation rather than an option.
    b) Contract price is set at the beginning of the contract
    c) Contracts are exchange-traded
    d) Gains or losses are recorded at contract expiration
    (3) What happens to the price of a futures contract as expiration draws closer?
    a) It exceeds the spot price of the asset
    b) It is exceeded by the spot price of the asset.
    c) It approaches the spot price of the asset.
    d) There is no relationship between futures price and spot price as the contract
    approaches expiration.
    (4) The process of marking a futures contract to market means that:
    a) The profitability of the contract is locked in from the onset of the contract.
    b) The amount of commodity to be delivered changes as prices change.
    c) Contracts are closed out as soon as they become unprofitable.
    d) Profits or losses are posted to the contract daily.

    (5) The basic difference between speculators and hedgers in futures contracts is that
    speculators:
    a) Will profit regardless of the direction of price change.
    b) Are not protecting their commodity holdings.
    c) Are concerned only with long-term price movements.
    d) Take a position in more than one commodity at a time.

    (6) Why are most futures contracts not settled through delivery of the product?
    a) Most contracts are settled through the margin account.
    b) Most contracts expire with neither party having an obligation to the other party.
    c) Most participants cancel their futures contracts through purchase of an option contract.
    d) It is easier and cheaper to settle in cash or by offset
    (7) Which of the following statements about futures contracts is wrong? 
    a) A futures contract is a marketable forward contract
    b) Futures contracts have standardized features and a clearinghouse to mitigate default
    risk
    c) Futures contracts can be used to fix the future selling price regardless of future changes
    in spot market prices
    d) The basis in futures is similar to a basis point in banks
    (8) The basis is defined as:
    a) spot price minus forward price
    b) futures price minus forward price
    c) forward price minus spot price
    d) spot price minus futures price
    (9) The cash price of wheat today is 410 cents per bushel, and the three-month futures price of
    the same is 421 cents per bushel. The basis is:
    a) -31 cents
    b) 11 cents
    c) -11 cents
    d) 421 cents
    (10) If a farmer buys a corn option on futures:
    a) The farmer has the right to deliver the corn, and will do so only if the price is favorable
    b) The farmer must accept a corn futures contract, and not take physical possession of the
    corn
    c) The farmer must deliver the corn at a fixed price
    d) The farmer must deliver the corn at the market price
    (11) Standardized futures contracts exist for all of the following underlying assets except:
    a) Gold.
    b) Stock indexes.
    c) Treasury bonds.
    d) Common stocks.
    (12) Which of the following is false?
    a) Futures contracts allow fewer delivery options than forward contracts.
    b) Futures contracts are more liquid than forward contracts.
    c) Futures contracts are marked to market.
    d) Futures contracts trade on a financial exchange.
    (13) Which of the following does the most to reduce default risk for futures contracts?
    a) High liquidity.
    b) Flexible delivery arrangements.
    c) Marking to market.
    d) Credit checks for both buyers and sellers.
    (14) Using futures contracts to transfer price risk is called:
    a) Speculating.
    b) Hedging.
    c) Diversifying.
    d) Arbitrage.
    (15) Which of the following has the right to sell an asset at a predetermined price?
    a) A call buyer.
    b) A call writer.
    c) A put buyer.
    d) A put writer.

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