30 Questions
Which of the following statements about the deposit on a futures contract is true?
It changes with the volatility of the underlying asset
What is backwardation in futures trading?
The futures price is higher than the spot price
Which of the following is NOT true about backwardation?
The temporal basis is positive
Which of the following is true about the deposit on a futures contract?
It is always higher for the sellers of futures contracts
What is backwardation in futures trading?
The futures price is lower than the spot price
Which of the following statements about backwardation is true?
The convenience yield is low
Which of the following best represents the open interest on a futures market?
The number of operators holding a position that is not closed
Which of the following is considered the most important underlying asset on organized markets for derivative products?
Individual equities and equity indexes
What does the operation of cash and carry in futures trading involve?
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
Which of the following is true about the deposit on a futures contract?
It is a part of the payment requested on the price of a futures contract
What is backwardation in futures trading?
The futures price is higher than the spot price
Which of the following is NOT true about backwardation?
The futures price is higher than the spot price
Which of the following best represents the open interest on a futures market?
The number of contracts that are not closed
What does the operation of cash and carry in futures trading involve?
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
Which of the following is considered the most important underlying asset on organized markets for derivative products?
Foreign exchange
Which of the following regions gather roughly 50% of the total volume traded on organized markets for derivative products?
Europe and North America
Which of the following is true about the deposit on a futures contract?
It is always higher for the sellers of futures contracts
What is backwardation in futures trading?
The futures price is higher than the spot price
Which of the following is NOT true about backwardation?
The temporal basis is positive
Which of the following represents the open interest on a futures market?
The number of contracts that are not closed
What is the operation of cash and carry in futures trading?
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
Which regions gather roughly 50% of the total volume traded on organized markets for derivative products?
Europe and North America
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?
Sell contracts for July expiry on the copper futures market of LME
Which of the following is true about the deposit on a futures contract?
It is a part of the payment requested on the price of a futures contract
What is backwardation in futures trading?
The futures price is higher than the spot price
Which of the following best represents the open interest on a futures market?
The speculator is systematically rewarded
Which of the following best represents the open interest on a futures market?
The number of operators holding a position that is not closed
What does the operation of cash and carry in futures trading involve?
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
Which of the following regions gather roughly 50% of the total volume traded on organized markets for derivative products?
Europe and North America
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?
Sell contracts for July expiry on the copper futures market of LME
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
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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