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Series 3 – Practice Test 3

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Question 1 of 10

1. Question

The commodity exchanges used the term ‘Open Interest’ which refers to:

The number of contracts that traded on the exchange that day.
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The number of contracts that were opened on the exchange that day.
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The total number of contracts which are outstanding and not yet settled.
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The number of contracts which were terminated on that day.
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Question 2 of 10

2. Question

All futures contracts have a minimum increment by which the price may change, more commonly referred to as:

1/100th of a cent
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1 cent
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Basis points
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Tick size
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Question 3 of 10

3. Question

The risk that a party to a futures contract will renege and fail to perform:

Is reduced by having registered brokers representing the parties
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Is reduced by having the registered Commodity Exchanges handling the purchase and sale of contracts
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Is referred to a litigation risk
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Is reduced by having a Clearinghouse acting as a counter-party to both sides of a trade, guaranteeing performance
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Question 4 of 10

4. Question

Once a client has been approved to use margin in trading futures contracts, the client has signed an agreement with their broker to be financially responsible for margin calls

Which will occur when contracts are initially entered into.
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Which will occur when the account equity falls below the minimum maintenance requirement.
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Which will occur when the broker changes its supervisory procedures requiring higher margin equity minimums.
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Which will occur when a client wishes to engage more complex strategies than simply going long or short futures contracts.
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Correct

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Question 5 of 10

5. Question

It is a truism in the trading markets for both securities and futures that:

Lower volume leads to narrow bid-ask spreads.
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Higher volume and liquidity lead to narrower bid-ask spreads.
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Thinly-traded securities and futures will tend to have tighter bid-ask spreads.
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Spreads between bid and ask prices are set by the Exchanges.
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Question 6 of 10

6. Question

Margin requirements in the futures markets are based upon a variety of factors, excluding:

How volatile is the price of the underlying commodity
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How liquid is the commodities market
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The liquid net worth and experience of the client
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The size of the contracts being traded
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Question 7 of 10

7. Question

Each of the below represent differences between a commodity futures contract and an option on a futures contract except:

An option provides an opportunity to take a position in the specific commodity whereas a futures contracts requires settling and exchanging the actual commodity
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An option is considered a security whereas futures are contracts involving the taking or making delivery of a commodity
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They may require separate exams to be taken by agents wishing to do business in both
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Options are not marginable whereas futures contracts are marginable
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Question 8 of 10

8. Question

The primary reason for initial margin deposit requirements is:

To prevent trading losses
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To provide a good faith deposit to be used in the event the position shows losses
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To lock in profits on trading positions
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To pay for transaction fees associated with taking positions
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Question 9 of 10

9. Question

A metals trader shorts a copper futures contracts with a 3.50 per pound price. They expect the price of copper to:

Decline
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Increase
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Remain neutral
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Not enough information to tell
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Question 10 of 10

10. Question

One of your clients takes a long position in 5 soybean futures contracts at $8.70 per bushel (contract size = 5000 bushels). If the price of soybeans declines to $8.50, your client will experience a:

Gain of $1,000
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Loss of $1,000
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Gain of $5,000
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Loss of $5,000
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Quiz Summary

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1. Question

The commodity exchanges used the term ‘Open Interest’ which refers to:

2. Question

All futures contracts have a minimum increment by which the price may change, more commonly referred to as:

3. Question

The risk that a party to a futures contract will renege and fail to perform:

4. Question

Once a client has been approved to use margin in trading futures contracts, the client has signed an agreement with their broker to be financially responsible for margin calls

5. Question

It is a truism in the trading markets for both securities and futures that:

6. Question

Margin requirements in the futures markets are based upon a variety of factors, excluding:

7. Question

Each of the below represent differences between a commodity futures contract and an option on a futures contract except:

8. Question

The primary reason for initial margin deposit requirements is:

9. Question

A metals trader shorts a copper futures contracts with a 3.50 per pound price. They expect the price of copper to:

10. Question

One of your clients takes a long position in 5 soybean futures contracts at $8.70 per bushel (contract size = 5000 bushels). If the price of soybeans declines to $8.50, your client will experience a: