Futures Contract Deposits
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Questions and Answers

Which of the following statements about the deposit on a futures contract is true?

  • It is always higher for the sellers of futures contracts
  • It is determined by regulatory authorities after they have consulted the operators of the market
  • It cannot be lower than 30% of the contract’s value, to limit the leverage effect and the speculation
  • It changes with the volatility of the underlying asset (correct)

    • What is backwardation in futures trading?

  • The difference between the futures and the spot prices is equal to storage costs
  • The convenience yield is high
  • The futures price is higher than the spot price (correct)
  • The temporal basis is negative

    • Which of the following is NOT true about backwardation?

  • The storage cost of the commodity is zero
  • The convenience yield is low
  • The speculator is systematically rewarded
  • The temporal basis is positive (correct)

    • Which of the following is true about the deposit on a futures contract?

    <p>It is always higher for the sellers of futures contracts</p> Signup and view all the answers

    What is backwardation in futures trading?

    <p>The futures price is lower than the spot price</p> Signup and view all the answers

    Which of the following statements about backwardation is true?

    <p>The convenience yield is low</p> Signup and view all the answers

    Which of the following best represents the open interest on a futures market?

    <p>The number of operators holding a position that is not closed</p> Signup and view all the answers

    Which of the following is considered the most important underlying asset on organized markets for derivative products?

    <p>Individual equities and equity indexes</p> Signup and view all the answers

    What does the operation of cash and carry in futures trading involve?

    <p>Selling a futures contract, buying the underlying asset, funding the holding of the underlying asset, and delivering this asset at the expiration of the futures contract</p> Signup and view all the answers

    Which of the following is true about the deposit on a futures contract?

    <p>It is a part of the payment requested on the price of a futures contract</p> Signup and view all the answers

    What is backwardation in futures trading?

    <p>The futures price is higher than the spot price</p> Signup and view all the answers

    Which of the following is NOT true about backwardation?

    <p>The futures price is higher than the spot price</p> Signup and view all the answers

    Which of the following best represents the open interest on a futures market?

    <p>The number of contracts that are not closed</p> Signup and view all the answers

    What does the operation of cash and carry in futures trading involve?

    <p>Selling a futures contract, buying the underlying asset, funding the holding of the underlying asset, and delivering this asset at the expiration of the futures contract</p> Signup and view all the answers

    Which of the following is considered the most important underlying asset on organized markets for derivative products?

    <p>Foreign exchange</p> Signup and view all the answers

    Which of the following regions gather roughly 50% of the total volume traded on organized markets for derivative products?

    <p>Europe and North America</p> Signup and view all the answers

    Which of the following is true about the deposit on a futures contract?

    <p>It is always higher for the sellers of futures contracts</p> Signup and view all the answers

    What is backwardation in futures trading?

    <p>The futures price is higher than the spot price</p> Signup and view all the answers

    Which of the following is NOT true about backwardation?

    <p>The temporal basis is positive</p> Signup and view all the answers

    Which of the following represents the open interest on a futures market?

    <p>The number of contracts that are not closed</p> Signup and view all the answers

    What is the operation of cash and carry in futures trading?

    <p>Consists in selling a futures contract, buying the underlying asset, funding the holding of the underlying asset and delivering this asset at the expiration of the futures contract</p> Signup and view all the answers

    Which regions gather roughly 50% of the total volume traded on organized markets for derivative products?

    <p>Europe and North America</p> Signup and view all the answers

    To liquidate a short position in the copper futures market of the London Metal Exchange (LME) for the month of July, what must an operator do?

    <p>Sell contracts for July expiry on the copper futures market of LME</p> Signup and view all the answers

    Which of the following is true about the deposit on a futures contract?

    <p>It is a part of the payment requested on the price of a futures contract</p> Signup and view all the answers

    What is backwardation in futures trading?

    <p>The futures price is higher than the spot price</p> Signup and view all the answers

    Which of the following best represents the open interest on a futures market?

    <p>The speculator is systematically rewarded</p> Signup and view all the answers

    Which of the following best represents the open interest on a futures market?

    <p>The number of operators holding a position that is not closed</p> Signup and view all the answers

    What does the operation of cash and carry in futures trading involve?

    <p>Selling a futures contract, buying the underlying asset, funding the holding of the underlying asset and delivering this asset at the expiration of the futures contract</p> Signup and view all the answers

    Which of the following regions gather roughly 50% of the total volume traded on organized markets for derivative products?

    <p>Europe and North America</p> Signup and view all the answers

    To liquidate a short position in the copper futures market of the London Metal Exchange (LME) for the month of July, what must an operator do?

    <p>Sell contracts for July expiry on the copper futures market of LME</p> Signup and view all the answers

    Study Notes

    Futures Contract Deposit

    • A deposit on a futures contract is a good faith deposit to ensure contractual obligations are met
    • The deposit is not the full payment for the underlying asset

    Backwardation

    • Backwardation is a situation where the spot price of a commodity is higher than its futures price
    • It is the opposite of contango, where the futures price is higher than the spot price
    • Backwardation is NOT a situation where the futures price is higher than the spot price

    Open Interest

    • Open interest on a futures market represents the total number of outstanding contracts

    Important Underlying Asset

    • The most important underlying asset on organized markets for derivative products is currencies

    Cash and Carry

    • Cash and carry involves buying a commodity at the spot price and selling a futures contract to lock in a profit

    Futures Trading

    • To liquidate a short position in the copper futures market of the London Metal Exchange (LME) for a specific month, an operator must buy back the same quantity of copper futures contracts for that month

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    Description

    Test your knowledge on the deposit requirements for futures contracts with this quiz. Learn about the role of the deposit, who determines it, and whether it is higher for buyers or sellers.

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