Futures Licensing (FLC) Exam
- Which of the following best describes a futures contract?
- A contract for immediate exchange of goods or services
- A standardized agreement to buy or sell an asset at a future date
- A personal agreement between two private parties
- A spot market transaction for instant delivery
Answer: B
Explanation: A futures contract is a standardized agreement traded on an exchange, stipulating the purchase or sale of an underlying asset at a specified future date.
- Futures contracts historically developed primarily to help which group manage price risk?
- Speculators
- Farmers and agricultural producers
- Arbitrageurs
- Consumers
Answer: B
Explanation: Futures markets originated as a way for farmers to lock in prices and manage the volatility of agricultural goods.
- Which of the following is NOT a type of participant in futures markets?
- Hedgers
- Speculators 1 / 4
Futures Licensing (FLC) Exam
- Arbitrageurs
- Unlicensed brokers
Answer: D
Explanation: The three main types of participants are hedgers, speculators, and arbitrageurs.Unlicensed brokers are not recognized as a valid participant category.
- Which of the following best describes the function of a futures exchange?
- To negotiate private, non-standardized contracts
- To provide a centralized marketplace with standardized contracts and rules
- To control global supply of commodities
- To ensure only spot transactions occur
Answer: B
Explanation: A futures exchange provides a regulated, centralized marketplace for standardized futures contracts.
- The Commodity Futures Trading Commission (CFTC) primarily serves what function?
- To set international commodity prices
- To regulate and oversee the U.S. futures markets
- To invest in futures contracts for government benefit
- To eliminate hedging activities
Answer: B 2 / 4
Futures Licensing (FLC) Exam
Explanation: The CFTC is the federal agency in the United States responsible for regulating futures and derivative markets.
- What is the primary role of a clearinghouse in futures trading?
- To set daily price limits
- To guarantee contract performance and manage counterparty risk
- To speculate on market price movements
- To negotiate contract terms with clients
Answer: B
Explanation: The clearinghouse stands between buyers and sellers of futures contracts, ensuring the financial integrity of every trade.
- Which term describes the minimum amount of money a trader must deposit to open a
- Margin call
- Tick size
- Initial margin
- Settlement price
futures position?
Answer: C
Explanation: Initial margin is the upfront amount required to initiate a futures position, helping to ensure each party can fulfill the contract.
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Futures Licensing (FLC) Exam
8. Marking to market in a futures account refers to:
- Settling the entire contract at the start
- Paying only transaction fees upfront
- Daily adjustment of gains or losses based on settlement prices
- Paying full notional value of the contract in advance
Answer: C
Explanation: Marking to market involves adjusting each account daily to reflect gains or losses on open positions according to the current settlement price.
9. A physical settlement futures contract requires:
- No actual exchange of the underlying asset
- Daily transfer of funds only
- Delivery of the physical underlying commodity or asset at expiration
- Immediate settlement on the trade date
Answer: C
Explanation: Physical settlement contracts require the underlying asset to be delivered if the position remains open at expiration.
10. If a futures contract is cash-settled, it means:
- The buyer and seller exchange the physical asset at maturity
- No margin is required
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