Quiz-summary
0 of 10 questions completed
Questions:
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
Information
Certdemy Premium Access
You have already completed the quiz before. Hence you can not start it again.
Quiz is loading...
You must sign in or sign up to start the quiz.
You have to finish following quiz, to start this quiz:
Results
0 of 10 questions answered correctly
Your time:
Time has elapsed
You have reached 0 of 0 points, (0)
Categories
- Not categorized 0%
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- Answered
- Review
-
Question 1 of 10
1. Question
Which of the following statements is true regarding locked limit?
Correct
Locked limit
Daily price limits are expressed in terms of a fixed amount above or below the current closing price of a contract. A price is said to have reached its locked limit when it has risen or fallen to its upper or lower limit amount. At this point, all trading in the contracts is suspended until the following day. However, limits can be adjusted based on the rules of the exchange. Since price limits exist to control panic buying and selling, the factors underlying a locked limit are examined to ascertain any such behavior. For example, if volatility is a result of the natural behavior of traders as an expiration period approaches (buying and selling to unwind positions), the limits may be adjusted so that trading can resume.Incorrect
Locked limit
Daily price limits are expressed in terms of a fixed amount above or below the current closing price of a contract. A price is said to have reached its locked limit when it has risen or fallen to its upper or lower limit amount. At this point, all trading in the contracts is suspended until the following day. However, limits can be adjusted based on the rules of the exchange. Since price limits exist to control panic buying and selling, the factors underlying a locked limit are examined to ascertain any such behavior. For example, if volatility is a result of the natural behavior of traders as an expiration period approaches (buying and selling to unwind positions), the limits may be adjusted so that trading can resume. -
Question 2 of 10
2. Question
Which of the following statements is false regarding Circuit breakers?
Correct
Circuit breakers
Circuit breakers are a coordinated, market-wide suspension of trading that first emerged when there were large price changes in the Dow Jones Industrial Average (DJIA). Such trading interruptions are designed to provide a “cooling off” period, during which market participants can reassess their trading strategies. This allows for the reestablishment of a more balanced trading environment within the market. Exchanges such as the Chicago Mercantile Exchange (CME) have adopted the same circuit breakers in futures and options contracts using stock indices as the underlying measure. For example, the CME recently established DJIA circuit breakers at 1300, 2650, and 3950 points, which represent index changes of 10%, 20%, and 30%. Similar breaks were established for all index-based contracts.Incorrect
Circuit breakers
Circuit breakers are a coordinated, market-wide suspension of trading that first emerged when there were large price changes in the Dow Jones Industrial Average (DJIA). Such trading interruptions are designed to provide a “cooling off” period, during which market participants can reassess their trading strategies. This allows for the reestablishment of a more balanced trading environment within the market. Exchanges such as the Chicago Mercantile Exchange (CME) have adopted the same circuit breakers in futures and options contracts using stock indices as the underlying measure. For example, the CME recently established DJIA circuit breakers at 1300, 2650, and 3950 points, which represent index changes of 10%, 20%, and 30%. Similar breaks were established for all index-based contracts. -
Question 3 of 10
3. Question
Regarding methods to settle a futures contract, which of the following statements is true?
Correct
Methods to settle a futures contract
Futures contracts can be settled on the contract settlement date through either physical delivery (primarily for hard assets such as agricultural products and metals, but also for treasury notes and bonds) or through a cash payment (for nondeliverables such as interest, currency rates, and stock indices, and also for treasury bills). Liquidation as a form of settlement consists of offsetting trades, also called reversing trades. Examples of offsetting trades include selling to offset a long position or buying to offset a short position. The intent is to revert to a zero position, though getting to a position of exactly zero is not always possible. Offsets are by far the most prevalent method of settling a futures contract.Incorrect
Methods to settle a futures contract
Futures contracts can be settled on the contract settlement date through either physical delivery (primarily for hard assets such as agricultural products and metals, but also for treasury notes and bonds) or through a cash payment (for nondeliverables such as interest, currency rates, and stock indices, and also for treasury bills). Liquidation as a form of settlement consists of offsetting trades, also called reversing trades. Examples of offsetting trades include selling to offset a long position or buying to offset a short position. The intent is to revert to a zero position, though getting to a position of exactly zero is not always possible. Offsets are by far the most prevalent method of settling a futures contract. -
Question 4 of 10
4. Question
From the statements below regarding liquidation, which one seems to be the most appropriate to you?
Correct
Liquidation
Liquidating (also known as offsetting or closing out) a long or short futures or options contract involves purchasing or selling opposite positions. The risk of liquidating a position arises when the appropriate number of offsetting contracts is either unavailable or unfavorably priced. If the contracts cannot be precisely matched, the trader will not achieve a net zero position through the clearing organization. Instead, the trader will create a new contract obligation while retaining the initial contract.Incorrect
Liquidation
Liquidating (also known as offsetting or closing out) a long or short futures or options contract involves purchasing or selling opposite positions. The risk of liquidating a position arises when the appropriate number of offsetting contracts is either unavailable or unfavorably priced. If the contracts cannot be precisely matched, the trader will not achieve a net zero position through the clearing organization. Instead, the trader will create a new contract obligation while retaining the initial contract. -
Question 5 of 10
5. Question
Which of the following statements is true regarding measurement of net profit or loss?
Correct
Measurement of net profit or loss
The close out (or liquidation) of a position creates realized profits and losses based on the price movement of the underlying commodity. Long positions generally benefit from price advances, while short positions benefit from price declines. The simplest form of measurement takes the contract size and the opening and closing price data into account.Incorrect
Measurement of net profit or loss
The close out (or liquidation) of a position creates realized profits and losses based on the price movement of the underlying commodity. Long positions generally benefit from price advances, while short positions benefit from price declines. The simplest form of measurement takes the contract size and the opening and closing price data into account. -
Question 6 of 10
6. Question
Which of the following statements is false regarding switching and rolling?
Correct
Switching and rolling
Switching and rolling is a means of offsetting a position as the first notice day draws near. A trader can avoid the risk of a delivery assignment and continue to maintain a long position by simultaneously selling an existing long position (in the spot month) and purchasing an equivalent number of contracts to duplicate his or her original position. Though delivery risk is avoided, the additional trades are associated with additional costs, principally commissions.Incorrect
Switching and rolling
Switching and rolling is a means of offsetting a position as the first notice day draws near. A trader can avoid the risk of a delivery assignment and continue to maintain a long position by simultaneously selling an existing long position (in the spot month) and purchasing an equivalent number of contracts to duplicate his or her original position. Though delivery risk is avoided, the additional trades are associated with additional costs, principally commissions. -
Question 7 of 10
7. Question
Regarding role of clearinghouse, which of the following statements is true?
Correct
Role of clearinghouse
The practice of a clearinghouse of assuming the role of counterparty to each trade (as buyer for each seller and as seller for each buyer) serves to facilitate the delivery process for those contracts that will be settled in this manner. Though the clearinghouse guarantees financial performance on each contract, the obligation to ensure that the physical commodity is delivered by the short or the seller remains with the member firm who owns the customer relationship. A clearinghouse will act as an intermediary between the two parties to the contract, receiving delivery notices and subsequently assigning those notices to a buyer. The actual delivery process can take place privately between the parties, or the clearinghouse may continue to be included. If the clearinghouse facilitates the delivery, it will continue to act as the intermediary for documentation and final payment. However, it is the responsibility of the seller to conform to the rules of the exchange and make the logistical arrangements for transferring the commodity.Incorrect
Role of clearinghouse
The practice of a clearinghouse of assuming the role of counterparty to each trade (as buyer for each seller and as seller for each buyer) serves to facilitate the delivery process for those contracts that will be settled in this manner. Though the clearinghouse guarantees financial performance on each contract, the obligation to ensure that the physical commodity is delivered by the short or the seller remains with the member firm who owns the customer relationship. A clearinghouse will act as an intermediary between the two parties to the contract, receiving delivery notices and subsequently assigning those notices to a buyer. The actual delivery process can take place privately between the parties, or the clearinghouse may continue to be included. If the clearinghouse facilitates the delivery, it will continue to act as the intermediary for documentation and final payment. However, it is the responsibility of the seller to conform to the rules of the exchange and make the logistical arrangements for transferring the commodity. -
Question 8 of 10
8. Question
From the statements below regarding role of clearinghouse, which one seems to be the most appropriate to you?
Correct
Role of clearinghouse
The practice of a clearinghouse of assuming the role of counterparty to each trade (as buyer for each seller and as seller for each buyer) serves to facilitate the delivery process for those contracts that will be settled in this manner. Though the clearinghouse guarantees financial performance on each contract, the obligation to ensure that the physical commodity is delivered by the short or the seller remains with the member firm who owns the customer relationship. A clearinghouse will act as an intermediary between the two parties to the contract, receiving delivery notices and subsequently assigning those notices to a buyer. The actual delivery process can take place privately between the parties, or the clearinghouse may continue to be included. If the clearinghouse facilitates the delivery, it will continue to act as the intermediary for documentation and final payment. However, it is the responsibility of the seller to conform to the rules of the exchange and make the logistical arrangements for transferring the commodity.Incorrect
Role of clearinghouse
The practice of a clearinghouse of assuming the role of counterparty to each trade (as buyer for each seller and as seller for each buyer) serves to facilitate the delivery process for those contracts that will be settled in this manner. Though the clearinghouse guarantees financial performance on each contract, the obligation to ensure that the physical commodity is delivered by the short or the seller remains with the member firm who owns the customer relationship. A clearinghouse will act as an intermediary between the two parties to the contract, receiving delivery notices and subsequently assigning those notices to a buyer. The actual delivery process can take place privately between the parties, or the clearinghouse may continue to be included. If the clearinghouse facilitates the delivery, it will continue to act as the intermediary for documentation and final payment. However, it is the responsibility of the seller to conform to the rules of the exchange and make the logistical arrangements for transferring the commodity. -
Question 9 of 10
9. Question
Which of the following statements is false regarding warehouse receipt?
Correct
Warehouse receipt
A warehouse receipt is a document used in the delivery process that provides evidence of possession of a commodity by a warehouse authorized by the exchange. The document is used by the clearinghouse to confirm delivery by the seller and receipt by the buyer. It also provides authorization for final settlement (and payment) per the terms of the contract.Incorrect
Warehouse receipt
A warehouse receipt is a document used in the delivery process that provides evidence of possession of a commodity by a warehouse authorized by the exchange. The document is used by the clearinghouse to confirm delivery by the seller and receipt by the buyer. It also provides authorization for final settlement (and payment) per the terms of the contract. -
Question 10 of 10
10. Question
Which of the following statements is true regarding establishing the value of a Eurodollar contract?
Correct
Establishing the value of a Eurodollar contract
Eurodollar contracts are based upon a $1 million time deposit with a three-month maturity. The pricing is quoted using the London Interbank Offered Rate (LIBOR) for three months. A 360-day year is also used. A subsidiary of the Chicago Mercantile Exchange (CME), the International Monetary Market (IMM), determines the settlement price using various procedures and measurements. The procedures and measurements used depend upon the time period of the settlement (interim periods or final). The price is expressed as 100 minus the three-month LIBOR rate. Once this price is available, gains or losses are calculated, and the mark to market process is used to update trading accounts.Incorrect
Establishing the value of a Eurodollar contract
Eurodollar contracts are based upon a $1 million time deposit with a three-month maturity. The pricing is quoted using the London Interbank Offered Rate (LIBOR) for three months. A 360-day year is also used. A subsidiary of the Chicago Mercantile Exchange (CME), the International Monetary Market (IMM), determines the settlement price using various procedures and measurements. The procedures and measurements used depend upon the time period of the settlement (interim periods or final). The price is expressed as 100 minus the three-month LIBOR rate. Once this price is available, gains or losses are calculated, and the mark to market process is used to update trading accounts.