CPT Commodities & Futures Trading

Question 1

What is a futures contract?

Accepted Answer

An agreement to buy or sell an asset at a predetermined price on a specified future date

Answer

An option to purchase a commodity at the current market price within 30 days

Answer

A spot market transaction settled within two business days

Answer

A forward contract exclusively traded on over-the-counter markets

Question 2

What does 'initial margin' represent in futures trading?

Accepted Answer

The good-faith deposit required to open a futures position

Answer

The total contract value that must be paid upfront in full

Answer

The profit earned on the first day of holding a futures position

Answer

The fee charged by the exchange for listing a futures contract

Question 3

Which of the following is the primary regulator of U.S. futures markets?

Accepted Answer

Commodity Futures Trading Commission (CFTC)

Answer

Securities and Exchange Commission (SEC)

Answer

Federal Reserve Board (FRB)

Answer

Financial Industry Regulatory Authority (FINRA)

Question 4

What is 'contango' in commodity futures markets?

Accepted Answer

When futures prices are higher than the expected future spot price

Answer

When spot prices exceed futures prices for a commodity

Answer

A situation where futures prices decline sharply over a single session

Answer

When the basis between two delivery months narrows to zero

Question 5

What is 'backwardation' in a futures market?

Accepted Answer

When spot prices are higher than futures prices for the same commodity

Answer

When futures prices exceed current spot prices

Answer

When a trader reverses a position before delivery

Answer

A strategy of selling futures while buying the underlying physical commodity

Question 6

A trader who is 'long' a crude oil futures contract profits when:

Accepted Answer

Crude oil prices rise above the contract's purchase price

Answer

Crude oil prices fall below the contract's strike price

Answer

The contract expires without being exercised

Answer

The futures premium over spot price increases

Question 7

What is 'marking to market' in futures trading?

Accepted Answer

Daily settlement of gains and losses in a futures account based on end-of-day prices

Answer

Placing buy orders at the current market price

Answer

Calculating the theoretical value of a futures contract at expiration

Answer

The process of matching buyers and sellers on a futures exchange