1215

The clearinghouse in a futures contract performs all but which of the following roles? The clearinghouse:

A) guarantees the physical delivery of the underlying asset to the buyer of futures contracts.

B) allows traders to reverse their position without having to contact the other side of the position.

C) guarantees traders against default from another party.

---

The clearinghouse does not guarantee the physical delivery of the underlying asset. Indeed, most futures contracts do not have a physical delivery, but are reversed.

1215

Which of the following statements about futures margin is least accurate?

A) Initial margin must be posted to a futures account within three days after the first trade.

B) The initial margin on a contract approximately equals the maximum daily price fluctuation of the contract.

C) If the margin account balance falls below the maintenance margin level, the trader must bring the account back up to the initial margin level.

---

Initial margin must be posted before trading.

1215

In the trading of futures contracts, the role of the clearinghouse is to:

A) stabilize the market price fluctuations of the underlying commodity.

B) guarantee that all obligations by traders, as set forth in the contract, will be honored.

C) maintain private insurance that can be used to provide funds if a trader defaults.

---

The clearinghouse does not originate trades, it acts as the opposite party to all trades. In other words, it is the buyer to every seller and the seller to every buyer. This action guarantees that all obligations under the terms of the contract will be fulfilled.

1215

The money added to a margin account to bring the account back up to the required level is known as the:

A) variation margin.

B) daily settlement.

C) maintenance margin.

---

The money added to a margin account to bring the account back up to the required level is known as the variation margin. The minimum allowed in the account is called the maintenance margin. The daily settlement process requires marking-to-market each day.

1215

A similarity of margin accounts for both equities and futures is that for both:

A) interest is charged on the margin loan balance.

B) additional payment is required if margin falls below the maintenance margin.

C) the value of the security is the collateral for the loan.

---

Both futures accounts and equity margin accounts have minimum margin requirements that, if violated, require the deposit of additional funds. There is no loan in a futures account; the margin deposit is a performance guarantee. The seller does not receive the margin deposit in futures trades. The seller must also deposit margin in order to open a position.