Understanding Futures Contracts

What is a Futures Contract?

• An agreement to buy or sell an asset at a certain time in the future for a certain price.

• A type of stock option.

• A contract that can only be traded privately.

• A loan agreement.

What are the main types of Futures Contracts?

• Commodity Futures and Financial Futures

• Real Estate Futures and Stock Futures

• Currency Futures and Bond Futures

• Options and Futures

What is the payoff for the buyer of a long futures contract?

• Spot Price at Maturity - Futures Price at Initiation

• Futures Price at Initiation - Spot Price at Maturity

• Futures Price at Maturity - Spot Price at Initiation

• None of the above

What happens if the Spot Price at Maturity is lower than the Futures Price?

• The buyer incurs a loss.

• The buyer makes a profit.

• The seller incurs a loss.

• The contract is void.

What is the payoff for the seller of a short futures contract?

• Futures Price at Initiation - Spot Price at Maturity

• Spot Price at Maturity - Futures Price at Initiation

• Futures Price at Maturity - Spot Price at Initiation

• None of the above

What is the difference between Commodity Futures and Financial Futures?

What are Currency Futures?

What is the role of the Exchange in Futures Contracts?

What is the contract size in Futures Contracts?

What are the delivery terms in Futures Contracts?