CMFAS Futures and Derivatives M4 2

Question 1

What is 'basis' in the context of futures trading?

Accepted Answer

The difference between the spot price and the futures price of an asset

Answer

The commission charged by a futures broker on each trade

Answer

The minimum price movement of a futures contract

Answer

The expiry date of a futures contract

Question 2

A hedger using futures contracts to protect an existing long position in a commodity portfolio is exposed to which residual risk?

Accepted Answer

Basis risk

Answer

Liquidity risk only

Answer

Credit risk from the exchange

Answer

Interest rate risk from margin calls

Question 3

Which of the following is a key difference between exchange-traded futures and over-the-counter (OTC) derivatives?

Accepted Answer

Futures are standardised contracts cleared through a CCP, whereas OTC derivatives are customised bilateral agreements

Answer

Futures contracts have no expiry date, whereas OTC derivatives always expire monthly

Answer

Futures can only be used for speculation, whereas OTC derivatives are only for hedging

Answer

Futures require physical delivery, whereas OTC derivatives are always cash-settled

Question 4

If a futures trader receives a margin call, what must they do?

Accepted Answer

Deposit additional funds to restore the margin account to at least the initial margin level

Answer

Immediately close all open futures positions

Answer

Transfer the futures contract to another broker

Answer

Request a waiver from the clearing house

Question 5

What does 'open interest' measure in a futures market?

Accepted Answer

The total number of outstanding futures contracts that have not been settled or closed

Answer

The total trading volume of futures contracts on a given day

Answer

The difference between the highest and lowest prices traded during a session

Answer

The number of contracts available for trading on the exchange

Question 6

Under the SFA in Singapore, which conduct is considered market manipulation in futures markets?

Accepted Answer

Entering fictitious transactions to create a false impression of active trading

Answer

Executing large trades that legitimately move the market price

Answer

Holding a significant long position in a futures contract

Answer

Using publicly available information to make trading decisions

Question 7

What is the concept of 'leverage' as it applies to futures trading?

Accepted Answer

The ability to control a large contract value by depositing only a small initial margin

Answer

The process of borrowing securities from a broker to short sell

Answer

The difference between the bid and ask price of a futures contract

Answer

The maximum loss a trader can incur on any single futures trade