ECN4001 - Tutorial 6 – Commodity Market

Questions – Worksheet 6 - Handout

Sources of Questions: The Core Text
Financial Markets and Institutions, Eighth Edition
Authors: Frederic S. Mishkin and Stanley G. Eakins
Chapter 24 - Hedging with Financial Derivatives & Commodity Market
Questions

Questions

Multiple Choice / True or False & Other Questions

Question 1).
1) A ______market is a market that trades in the primary economic sector rather than
manufactured products, such as cocoa, fruit and sugar.

A. commodity
B. cash
C. share
D. banking

Question 2).
2) Traditionally ____________ has been the largest producers of gold in the world.

A. europe
B. south america
C. south asia
D. south africa

Question 3).
3) By using the currency forward market to sell dollars forward, an _________ can lock on to
a rate today and reduce his uncertainty.

A. arbitrager
B. speculator
C. importer
D. exporter

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Question 4).
4) Which of the following is not a financial derivative?
lA) Stocks
B) Futures
C) Options
D) Forward contracts

Topic: Chapter 24.5 Options

Question Status: Previous Edition

Question 5).
5) Commodities, which are to be received by a clearing member, are delivered to him in the
depository clearing system in respect of depository deals on the respective __________ day
as per instructions of the exchange/ clearing house.

A. expiration
B. pay-in
C. settlement
D. pay-out

Question 6).
6) This option to give delivery is given during a period identified as
_______________________.

A. delivery notice period

B. settlement period
C. delivery period
D. option notice period

Question 7).
7). The first use of derivatives contract was ________________.

A. to manage price uncertainty

B. for speculation
C. for arbitrage
D. speculation

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Question 8).
8) A futures contract is nothing but a forward contract that is __________.

A. sold by mutual funds

B. sold by banks
C. traded across the counter
D. exchange traded

Question 9).
9) Final settlement happens on the ____________.

A. last trading day of the month

B. last trading day of the week
C. last trading day of the futures contract
D. after selling the shares

Question 10).
24.2 True/False

3) A long contract obligates the holder to sell securities in the future.

Topic: Chapter 24.1 Hedging

Question Status: Previous Edition

Let us take a Break for 10 minutes

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Question 11).
11) What are the Risks of the Commodity Market?

Question 12).

12) What are the Strategies to manage risk on the Commodity Market?

Question 13).
13) How can you make a return from the commodity Market?

Question 14).
5) A contract that calls for the investor to (possibly) sell securities on a future date is called a
________.

A) short contract
B) long contract
C) hedge
D) micro hedge

Topic: Chapter 24.1 Hedging

Question Status: Updated from Previous Edition

Question 15).
7) With a short contract, the investor (may)

A) sell securities in the future.

B) buy securities in the future.
C) hedge in the future.
D) close out his position in the future.

Topic: Chapter 24.1 Hedging

Question Status: Updated from Previous Edition

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Question 16).
8) Which is not a problem of forward contracts?

A) A lack of liquidity
B) A lack of flexibility
C) The difficulty of finding a counterparty
D) Default risk

Topic: Chapter 24.2 Forward Markets

Question Status: Previous Edition

Question 17).
23) The advantage of forward contracts over futures contracts is that forward contracts

A) are standardized.
B) have lower default risk.
C) are more flexible.
D) both A and B are true.

Topic: Chapter 24.3 Financial Futures Markets

Question Status: Previous Edition

Question 18).
24) Futures markets have grown rapidly because futures contracts

A) are standardized.
B) have lower default risk.
C) are liquid.
D) are all of the above.

Topic: Chapter 24.3 Financial Futures Markets

Question Status: Previous Edition

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Question 19).
25) Futures differ from forwards because they are

A) used to hedge portfolios.

B) used to hedge individual securities.
C) used in both financial and foreign exchange markets.
D) standardized contracts.

Topic: Chapter 24.3 Financial Futures Markets

Question Status: Previous Edition

Question 20).

2) Financial derivatives include ________.

A) stocks
B) bonds
C) forward contracts
D) both A and B

Topic: Chapter 24.2 Forward Markets

Question Status: Previous Edition