Podcast
Questions and Answers
What is a key characteristic of a futures contract?
What is a key characteristic of a futures contract?
- It is only traded over-the-counter
- It is a standardized contract (correct)
- It is a forward contract
- It is a negotiable agreement
What is a restriction on trading futures contracts?
What is a restriction on trading futures contracts?
- Contracts can be traded for any quantity of the underlying asset
- Only whole contracts can be traded (correct)
- Only fractional contracts can be traded
- Contracts can be traded for any quantity of the underlying asset or other assets
What is a feature of the terms of a futures contract?
What is a feature of the terms of a futures contract?
- They are negotiable between buyers and sellers
- They are standardized and non-negotiable (correct)
- They are set by the exchange, but can be modified by the parties
- They are set by the government
Why are futures contracts traded on an exchange?
Why are futures contracts traded on an exchange?
What is a benefit of the standardization of futures contracts?
What is a benefit of the standardization of futures contracts?
What is a common aspect of settlement in futures contracts?
What is a common aspect of settlement in futures contracts?
What determines the quality of a commodity in a futures contract?
What determines the quality of a commodity in a futures contract?
What is the primary purpose of a futures exchange?
What is the primary purpose of a futures exchange?
What is a key aspect of the quantity of goods in a futures contract?
What is a key aspect of the quantity of goods in a futures contract?
What is the currency of a futures contract typically denominated in?
What is the currency of a futures contract typically denominated in?
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Study Notes
Futures Contract Trading
- Futures contracts are traded on a futures exchange, subject to the exchange's rules and regulations.
- Standardization of the futures contract facilitates secondary market trading.
Key Characteristics of Futures Contracts
- Relates to a specific quantity of the underlying asset.
- Only whole contracts can be traded.
- Trading of fractional contracts is not allowed.
- Terms of the futures contract are non-negotiable.
Futures Contract Characteristics
- Futures contracts are traded on a futures exchange, subject to the exchange's rules and regulations.
- Standardization of futures contracts enables secondary market trading.
- Futures contracts relate to a specific quantity of the underlying asset, with only whole contracts tradeable (fractional contracts not allowed).
- Terms of futures contracts are non-negotiable.
Contract Specifications
- Unit of measurement is specified in the contract.
- Settlement terms are defined, with options for physical delivery of a given quantity of goods or cash settlement.
- Quantity of goods to be delivered or covered under the contract is specified.
- Currency in which the futures contract is quoted is defined.
- Trade or quality considerations may be included, such as specific octane of gasoline or purity of metal, or certain conditions of the commodity.
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