At the time a futures contract is written,
A) The buyer locks in a guaranteed profit
B) A cash payment is made by the buyer
C) The market price of the underlying asset on the date must be less than the agreed upon futures price
D) The underlying asset is specifically identified
E) The seller of the futures contract believes the price of the underlying asset will rise above the agreed upon price

Question

Quizplus · Accepted Answer

When a futures contract is written, the underlying asset is specifically identified. This allows the parties involved to agree on the price, quantity, and delivery date of the asset. The other options listed are incorrect. The buyer does not necessarily lock in a guaranteed profit, a cash payment may or may not be made by the buyer, the market price of the underlying asset can be either higher or lower than the agreed upon futures price, and the seller may believe the price of the underlying asset will either rise or fall.

At the Time a Futures Contract Is Written