Investment Management

Business

Quiz 15 :
Commodities and Financial Futures

Quiz 15 :
Commodities and Financial Futures

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A requirement of a futures contract is that the buyer takes possession on a given date.
Free
True False
Answer:

Answer:

False
Explanation: The person who sells the contract does not need to have actual possession of the corn, nor does the purchaser of the contract need to plan on taking possession of the corn.

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Commodities can usually be purchased with a very small margin requirement.
Free
True False
Answer:

Answer:

True
Explanation: Commodities are purchased on the basis of a small investment in the form of a margin (usually running 2-10% of the value of the contract). There is substantial leverage on the investment, and percentage returns and losses are greatly magnified.

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The commodities exchanges are regulated primarily by the SEC.
Free
True False
Answer:

Answer:

False
Explanation: The activities of the commodity exchanges are primarily regulated by the Commodity Futures Trading Commission (CFTC), a federal regulatory agency established by Congress in 1975. The CFTC has had a number of jurisdictional disputes with the SEC over the regulation of financial futures.

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The margin requirement on commodities futures is generally the same as or lower than financial futures.
True False
Answer:
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Because of price movement limitations, the commodities market is not always in equilibrium.
True False
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Trading in financial futures is similar to trading in commodities except for considerably higher margin requirements for financial futures.
True False
Answer:
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Corporate financial managers use interest rate futures to reduce the risk of loss from a change in interest rates.
True False
Answer:
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Cross-hedging refers to the practice of using one form of security to reduce risk on another form of security.
True False
Answer:
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The use of financial futures will most likely increase as financial managers gain a greater understanding and appreciation of their uses.
True False
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The futures markets were originally set up to allow livestock producers to speculate in their positions in a given commodity.
True False
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Most commodity futures contracts are closed out before the actual transaction is to take place.
True False
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To close a position, the seller/buyer of a contract would buy/sell a similar contract.
True False
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For a hedge to work, the futures contract must continue until actual delivery takes place.
True False
Answer:
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A hedger reduces risk of loss and enhances additional profit opportunities.
True False
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Hedging is the basic reason for the existence of the commodity exchanges.
True False
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Speculators are not significant participants in the commodities markets.
True False
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The commodity exchanges are primarily regulated by the Federal Reserve.
True False
Answer:
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Commodity trading is based on the use of margin rather than actual cash dollars.
True False
Answer:
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As in the stock and bond markets, interest is paid on a margined commodity contract.
True False
Answer:
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Initial margin requirements usually run 70-80% of the contract price.
True False
Answer:
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