Futures Markets and Securities

Question 1

cash market

Answer 1

A market where a product or commodity changes hands in exchange for a cash price paid when the transaction is completed. (Chapter 15)

Question 2

currency futures

Answer 2

Futures contracts on foreign currencies, traded much like commodities. (Chapter 15)

Question 3

daily price limit

Answer 3

Restriction on the day-to-day change in the price of an underlying commodity. (Chapter 15)

Question 4

delivery month

Answer 4

The time when a commodity must be delivered; defines the life of a futures contract. (Chapter 15)

Question 5

financial futures

Answer 5

A type of futures contract in which the underlying “commodity” is a financial asset, such as debt securities, foreign currencies, or common stocks. (Chapter 15)

Question 6

futures contract

Answer 6

A contract that obligates investors to buy or sell some underlying asset at a fixed price on a specific future date. (Chapter 15)

Question 7

futures market

Answer 7

The organized market for the trading of futures contracts. (Chapter 15)

Question 8

futures options

Answer 8

Options that give the holders the right to buy or sell a single standardized futures contract for a specified period of time at a specified strike price. (Chapter 15)

Question 9

hedgers

Answer 9

Producers and processors who use futures contracts to protect their interest in an underlying commodity or financial instrument. (Chapter 15)

Question 10

initial margin

Answer 10

The minimum amount of equity that must be provided by a margin investor at the time of purchase. (Chapters 2 and 15)

Question 11

interest rate futures

Answer 11

Futures contracts on debt securities. (Chapter 15)

Question 12

maintenance margin

Answer 12

The absolute minimum amount of margin (equity) that an investor must maintain in the margin account at all times. (Chapters 2 and 15)

Question 13

margin deposit

Answer 13

Amount deposited with a broker to cover any loss in the market value of a futures contract that may result from adverse price movements. (Chapter 15)

Question 14

mark-to-the-market

Answer 14

A daily check of an investor’s margin position, determined at the end of each session, at which time the broker debits or credits the account as needed. (Chapter 15)

Question 15

maximum daily price range

Answer 15

The amount a commodity price can change during the day; usually equal to twice the daily price limit. (Chapter 15)

Question 16

open interest

Answer 16

The number of contracts currently outstanding on a commodity or financial future. (Chapter 15)

Question 17

open-outcry auction

Answer 17

In futures trading, an auction in which trading is done through a series of shouts, body motions, and hand signals. (Chapter 15)

Question 18

return on invested capital

Answer 18

Return to investors based on the amount of money actually invested in a security, rather than the value of the contract itself. (Chapter 15)

Question 19

round-trip commission

Answer 19

The combined commission that investors pay when they buy and sell a security. (Chapter 15)

Question 20

settlement price

Answer 20

The closing price (last price of the day) for commodities and financial futures. (Chapter 15)

Question 21

speculators

Answer 21

Investors who trade a particular asset purely to take advantage of a price change that they believe will occur. (Chapter 15)

Question 22

stock index futures

Answer 22

Futures contracts pegged to broad-based measures of the performance of the stock market such as a stock index. (Chapter 15)

Question 23

volume

Answer 23

The number of securities traded in a particular time interval. (Chapter 15)