Series 3 – The National Commodities Futures Test Series 3 – The National Commodities Futures Test Futures Trading Mechanics & Market Structure 2

Question 1

Which entity acts as the buyer to every seller and the seller to every buyer in futures markets?

Accepted Answer

Clearinghouse

Answer

The clearinghouse interposes itself between all parties, guaranteeing contract performance and eliminating counterparty risk.

Question 2

A futures trader who offsets a long position by selling an equal number of contracts in the same delivery month has:

Accepted Answer

Closed the position

Answer

Selling an equal and opposite contract in the same month closes (offsets) the original long position.

Question 3

What does the term 'contract month' refer to in futures trading?

Accepted Answer

The month in which delivery or final settlement occurs

Answer

The contract month specifies when the futures contract expires and physical delivery or cash settlement takes place.

Question 4

Which price relationship shows whether a futures contract is trading above or below the spot price?

Accepted Answer

Basis

Answer

Basis is the difference between the cash (spot) price and the futures price at a specific location and time.

Question 5

A 'limit move' in a futures market occurs when:

Accepted Answer

The price reaches the maximum daily price change set by the exchange

Answer

A limit move means the futures price has moved the maximum amount allowed by exchange rules in a single session.

Series 3 – The National Commodities Futures Test Practice Test