Investment & Portfolio Management - Finals Quiz 1

If the spot price is expected to change, a trader can engage in speculation through forwards.

• True

• False

Hedging through the use of (a)   contracts reduces risk by fixing a delivery or purchase price.

A financial future can also be formed by converting an index into a monetary equivalent.

• True

• False

Commodity futures are trades in actual commodities.

• True

• False

In a commodity contract, there is also a commitment to trade and agreed quantity at a fixed price at a future date.

• True

• False

A forward is settled on the delivery date.

• True

• False

(a)   are contracts drawn up on the basis of some future price or index, such as the interest rate or a stock index.

The advantage of a futures contract is that it fixes the price and guards against price changes

• True

• False

Commodity futures were first introduced onto an exchange by the Chicago Board of Trade in the 1860s to assist with the reduction in trading risk for the (a)   industry.

A strategy of hedging can be used to guard against unfavourable movements in the product price.

• True

• False