Quiz 15: Commodities and Financial Futures

Business

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.

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.

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.