Series 3 – The National Commodities Futures Test Hedging Strategies & Commodity Market Fundamentals Flashcards
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An airline company buying jet fuel futures to manage fuel costs is an example of:
Answer: A commercial hedger managing input cost risk
Airlines use energy futures as commercial hedgers to reduce exposure to unexpected increases in jet fuel costs.
A 'carrying charge market' exists when futures prices for deferred months are higher than nearby months by an amount reflecting:
Answer: Storage, insurance, and financing costs
A full carrying charge market reflects the cost of storing the physical commodity from the nearby delivery period to the deferred period.
In an inverted market (backwardation), nearby futures prices are:
Answer: Higher than deferred futures prices
Backwardation occurs when nearby prices exceed deferred prices, often due to tight current supply or high immediate demand.
What is a 'cross hedge' in commodity futures?
Answer: Using a futures contract in a related commodity when no exact futures contract exists
A cross hedge uses a futures contract whose price is closely correlated with but not identical to the cash commodity being hedged.
When a hedger's basis strengthens (becomes less negative or more positive), the short hedger will:
Answer: Benefit because the cash price rose relative to futures
A strengthening basis means the cash price increased relative to the futures price, improving the net selling price for the short hedger.
Gold and silver futures are primarily traded on which US exchange?
Answer: COMEX (part of CME Group)
COMEX, now a division of CME Group, is the leading US marketplace for precious metals futures including gold, silver, copper, and platinum.
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Sources & references
Exam facts on this page (fees, format, dates, passing scores) are checked against these official sources; the date is our last check. Editorial policy
- finra.org — Score release, test dates, test delivery, fees, exam format, passing score · verified Oct 2026
- nfa.futures.org — Eligibility, score validity · verified Oct 2026