FIA Commodities Markets & Trading 3

Question 1

An oil refinery buys crude oil futures and simultaneously sells refined petroleum product futures. This risk management strategy is called a:

Accepted Answer

Crack spread

Answer

Crush spread

Answer

Calendar spread

Answer

Inter-commodity spread

Question 2

What is the primary consequence for a commodity futures trader who fails to meet a margin call?

Accepted Answer

Forced liquidation of the trader's position by the broker

Answer

A formal credit rating downgrade issued by major rating agencies

Answer

An immediate regulatory fine imposed by the CFTC

Answer

A permanent ban from trading on commodity exchanges

Question 3

A trader who buys a December corn futures contract and sells a March corn futures contract is executing a:

Accepted Answer

Calendar (intra-commodity) spread between two delivery months

Answer

Inter-commodity spread between two different grain markets

Answer

Basis trade exploiting local cash market differences

Answer

Crack spread between corn and ethanol futures

Question 4

Which of the following best describes 'physical delivery' in a commodity futures contract?

Accepted Answer

The actual underlying commodity is transferred from the short to the long at contract expiration

Answer

The clearinghouse delivers variation margin payments to profitable traders

Answer

Commodity price information is delivered electronically to all registered traders

Answer

All commodity futures contracts are cash-settled and never involve actual commodity transfer

Question 5

The term 'position limit' in commodity markets refers to:

Accepted Answer

The maximum number of futures contracts a single trader may hold in a specific commodity

Answer

The maximum cumulative loss a trader is permitted to sustain before account closure

Answer

The minimum capital investment required to open a commodity futures trading account

Answer

The maximum number of trades a broker may execute on behalf of a client per trading day

Question 6

Soybean processors buy soybean futures and sell soybean oil and soybean meal futures to manage their processing margin. This hedging strategy is known as a:

Accepted Answer

Crush spread

Answer

Crack spread

Answer

Calendar spread

Answer

Cross-hedge

Question 7

What are the two primary economic functions served by commodity futures markets?

Accepted Answer

Price discovery and risk transfer between hedgers and speculators

Answer

Guaranteeing commodity producer profits and stabilizing government tax revenues

Answer

Replacing spot markets and providing government price controls on essential goods

Answer

Financing commodity production and providing long-term storage solutions