Quiz on Mechanics of Futures Markets

What is the main difference between futures and forward contracts?

• Futures contracts involve more credit risk compared to forward contracts

• Futures contracts have standardized terms, while forward contracts are non-standard

• Futures contracts are settled daily, while forward contracts are settled at the end of the contract

• Futures contracts are traded on an exchange, while forward contracts are traded in the over-the-counter market

What is the purpose of daily price limits in futures contracts?

• To allow for unlimited price fluctuations

• To encourage more traders to enter the market

• To ensure that the contract defaults are avoided

• To prevent large price movements due to speculative excesses

What is the role of a margin account in futures trading?

• To minimize the possibility of a loss through a default on a contract

• To eliminate the need for daily settlement

• To guarantee a profit for the investor

• To provide additional funds for trading

What is the purpose of a clearing house in futures trading?

• To guarantee the execution of the contract

• To offer financial advice to traders

• To regulate the price movements in the market

• To provide trading signals to investors

Which type of futures contract involves shares of companies?

• Currency Futures

• Commodity Futures

• Interest Rates Futures

• Stock Futures

What is the main function of index futures in hedging?

• To eliminate the need for margin accounts

• To speculate on the future price movements of commodities

• To hedge the risk arising from short-term fluctuations in share prices

• To provide leverage for trading currency pairs

In currency futures, which currency is quoted as units of the foreign currency per USD?

• Japanese Yen (JPY)

• Euro (EUR)

• Pound Sterling (GBP)

• US Dollars (USD)

What is the main purpose of forward contracts in foreign currency dealings?

• To hedge the risk in foreign currency dealings

• To speculate on the future exchange rates

• To eliminate the need for collateral

• To provide leverage for trading currency pairs

What is the main difference between bilateral clearing and central clearing in OTC markets?

• Bilateral clearing has no credit risk, while central clearing has high credit risk

• Bilateral clearing involves transactions between two sides, while central clearing involves transactions through clearing houses

• Bilateral clearing is only used for currency derivatives

• Bilateral clearing is more regulated than central clearing

What is the purpose of volume trading in futures markets?

• To measure the number of trades in one day

• To determine the settlement price of futures contracts

• To provide leverage for traders

• To regulate the price limits in the market