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Reading 70: Futures Markets and Contracts-LOS e 习题精选

Session 17: Derivatives
Reading 70: Futures Markets and Contracts

LOS e: Describe how a futures contract can be terminated at or prior to expiration.

 

 

An exchange-for-physicals, as it pertains to futures contracts:

A)
is another term for delivering an asset to satisfy a futures contract.
B)
is another term for accepting delivery of an asset to satisfy a futures contract.
C)
involves an agreement off the floor of the exchange.


 

An exchange-for-physicals involves an agreement between long and short contract holders to settle their respective obligations by delivery and purchase of an asset. It is executed off the floor of the exchange and reported to exchange officials who then cancel both positions.

Which of the following statements about closing a futures position through delivery is most accurate?

A)
Depending on the wording of the contract, a trader may close a contract by either delivering the goods to a designated location or by making a cash settlement of any gains or losses.
B)
Although the popularity of physical delivery has decreased over time, delivery by cash settlement remains the most popular method of closing a futures position.
C)
Delivery is also known as exchange for physicals (EFP).


The other statements are false.

Physical deliveries and cash settlements combined represent less than one percent of all settlements.

An exchange for physicals differs from a delivery in that:

  • The traders actually exchange the goods.

  • The contract is not closed on the floor of the exchange.

  • The two traders privately negotiate the terms of the transaction.

TOP

Which of the following statements about closing a futures position is least accurate?

A)
Few futures positions are settled by delivery of cash or assets.
B)
Except for exchange for physicals (EFP) transactions, futures contracts must be closed on the exchange floor.
C)
Closing a position through delivery refers exclusively to the physical delivery of goods.


Delivery can also occur through cash settlement of gains and losses. The other statements are true. Approximately one percent of futures transactions are closed through actual delivery or cash settlement.

TOP

All of the following are methods to close out a futures position EXCEPT:

A)
delivery of the underlying commodity.
B)
through an exchange for physicals with another trader.
C)
allowing the contract to expire without taking action.


A futures contract cannot expire without any action being taken. If the contract has not been closed out through an offsetting trade, then one party must deliver the underlying commodity and the other party must purchase the commodity.

TOP

Which method is NOT an appropriate way to close out a futures contract?

A)
Reverse trade.
B)
Delivery.
C)
Default.


Default is failure to perform as required under the contract.

TOP

Which of the following statements about closing a futures contract through offset is most accurate?

A)
A low percentage of offsets take place ex-pit.
B)
The clearinghouse nets the position to zero.
C)
In an offset, or reversing trade, a trader makes an exact opposite trade (maturity, quantity, and good) to her current position, either through the clearinghouse or a private party.


An offset trade must be conducted on the floor of the exchange through the clearinghouse. Exchange for physicals (EFP) involves private parties and takes place ex pit, or off the exchange floor.

TOP

Prior to contract expiration the short in a futures contract can avoid futures exposure by:

A)
using an exchange-for-physicals.
B)
entering into a reversing trade.
C)
paying a cash settlement amount.


Prior to expiration, a futures position (long or short) is closed out by an offsetting/reversing trade. The other methods are used to settle positions at contract expiration.

TOP

Closing out a futures position prior to expiration:

A)
can only be done by the long.
B)
removes price risk but not necessarily counterparty risk.
C)
can be done by entering into an offsetting trade at the current futures price.


Taking the opposite position in an equal number of contracts on the same asset with the same expiration date ends any further exposure under the original contract.

TOP

An offsetting trade is used to:

A)
fully hedge a risk arising in the normal course of business activity.
B)
partially hedge the interest rate risk of a bond position.
C)
close out a futures position prior to expiration.


An offsetting/reversing trade is used to close out a futures position prior to expiration.

TOP

Most deliverable futures contracts are settled by:

A)
delivery of the asset at contract expiration.
B)
an offsetting trade.
C)
a cash payment at expiration.


Most futures positions are closed out by an offsetting trade at some point during life of the contract.

TOP

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