Schweser Mock #29 afternoon long, advantages, afternoon, achieved

skycfa

With respect to Egan’s statement about the advantages of futures and Reed’s response about adjusting duration:
A) Egan is correct; Reed is correct.
B) Egan is incorrect; Reed is correct.
C) Egan is incorrect; Reed is incorrect.
Your answer: B was incorrect. The correct answer was A) Egan is correct; Reed is correct.
By taking a long position in futures contracts virtually any duration up to 30 years can be achieved. The three main advantages of using futures over cash market instruments are that futures are more liquid, transaction costs are less, and futures are easier to short sell than an actual bond.
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None of those addressed the statement about margin. Don’t you have to post margin for futures, but not for cash instruments?

bleach

Cash instruments by definition 100% investment is needed, futures have minimal cash requirments, typically viewed as negligible.

grharmeyer

end of the day it is an amount you spent… call it an investment.
the amount is being compared, how much you would need to invest in a cash security vs. a future, both of which you are buying