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A contract for future delivery traded on organized futures exchanges, like the Chicago
Mercantile Exchange:
Futures Contract
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The monies required, per contract, before a potential trader can be involvedin buying or
selling futures contracts for a particular commodity.
Initial Margin
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Margin calls occur when:
an account is incurring a loss
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What are the percentages of the initial and maintenance margins?
5% of contract value and 65%of initial margin, respectively
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What groups trade futures?
Speculators, hedgers, and floor traders
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What is the purpose and what occurs with a short hedge?
It protects a long cash position from a price decline, and it is initiated by selling a
futures contract.
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A participant in the futures market may receive a margin call if...
He has long futures position and prices decrease or he has short futures
position and prices increase
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Taking a futures position opposite to one's cash market position
Hedging
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A return to holding a physical asset
Convenience yield
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A government agency that regulates and oversees the futures markets
Commodity Futures Trading Commisssion
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The difference between the cash price in a particular market and time period and a
specific commodity futures contract
Basis
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The buyer of an option may exit the option by:
Allowing it to expire, by offsetting the option, or exercising the option.
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If a speculator believes the price between two futures contracts will widen, he will
________the high priced contract and ________ the low priced contract
buy, sell
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What is a market where exchange is immediate and most transactions occur without any
discussion of price?
posted price market
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What is price discovery?
How market prices are determined through the interaction between forces of supply and
demand, subject to constraints imposed by conditions of competition in that market.
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What percentage of futures contracts actually result in the exchange of product?
About 2%
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The common name for the place where prices for futures contracts is negotiated is called..
“The Pit”
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What is the benefit of participation in the futures market for agribusinesses?
Minimize the impact of price fluctuations on the business.
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The regulatory agency governing futures trading in the United States
Commodity Futures Trading Commission (CFTC)
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Name any two futures exchanges in the United States
Chicago Mercantile, Chicago Board of Trade, New York BOT, Kansas City BOT,
Philadelphia BOT, Minneapolis Grain Exchange
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The difference between the futures and cash price of a commodity
Basis
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What are the groups that trade futures?
Speculator, Hedgers, and Floor Traders
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Establishment of a position in the futures market that is equal and
opposite the position, in the cash market with an objective of transferring
cash price risk to others.
Hedging
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What are five things that have to be included in a futures contract?
Quantity, quality, time, location, and price
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What three ways can a buyer exit the option?
Allowing it to expire, offsetting the option, or exercising the option
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In what shape is the pit in exchanges?
Octagon
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Define hedging.
The establishment of a position in the futures market that is equal and opposite the
position in the cash market with an objective of transferring cash price risk to others.
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What is the term used for the first contract traded during a day?
Open
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____________ is a return to holding a physical asset.
Convenience yield
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____________ is the margin that must be deposited due to daily settlements.
Variation margin
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What refers to the ratio of the number of futures contracts purchased or sold to the size of
the cash position being held?
Optimal hedge ratio
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Define Intrinsic Value:
The amount by which an option is in the money.
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The difference between the cash price in a market at a certain time and a specific
commodity futures contract.
Basis
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Define a chartist.
A trader who uses technical analysis in an attempt to predict price from past patterns or
market data.
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_________ is to buy as _________ is to sold.
Long;short
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What are the three groups who trade futures?
Speculators, hedgers, floor traders
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What government agency regulates and oversees the futures markets?
Commodity Futures Trading Commission
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List the ways a buyer of an option may exit the option.
Allowing it to expire, offsetting the option, or exercising the option.
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What does it mean if you are described as a bear in the market?
That you sell, or go short, upon entering a futures contract.
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What is the maintenance margin?
level of margin funds that precipitates a margin call if the account
balance falls below the specified maintenance margin level.
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What is the basis?
the basis is the difference between the cash price in a particular
market and time period and a specific commodity futures contract.
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What are the four standardized terms of trade?
Quantity, Quality, Location of trade, Time in future of trade
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__________ refers to the amount of money the trader can loose before you must put up
additional capital.
Maintenance Margin
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When the maintenance margin is greater than what is in the account there is a/an
___________.
Margin Call
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____________ flow through the cash market.
Physical Products
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A spread between KC July wheat and Minneapolis March wheat would be an ________
commodity, __________ market spread.
Intra, inter
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What is a selling hedge designed to do?
Protect against falling prices
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A speculator initiated a spread by buying March corn 210 cents per bushel and selling
July corn in the same market at 222 cents per bushel. What is he anticipating will happen
to the spread.
It will narrow