Ag ec 389 test 1

It is February today. A wheat farmer who plans to sell wheat in August is implicitly holding a____________________________position in the cash market.

long

It's February today. A flour mill that plans to buy wheat in May is implicitly holding a_____________position in the cash market.

short

Which of the following is true?

Futures contracts are traded on exchanges, but forward contracts are not.

If the nearby futures contract price for corn is $8/bushel, and the cash price in your local market for corn is $9/bushel, what is the basis today at your local market?

+$1/bushel

You sell one December contract when the futures price is $1,010 per unit. Each contract is on 100 units and the initial margin per contract that you provided is $2,000. The maintenance margin per contract is $1,500. During the next day, the futures price rises to $1,018 per unit. What is the balance of your margin account at the end of the day before margin calls?

1200 (You went short (sold) one contract, so any price increase represents a decrease in the value of your position. For each unit, the price has increased by $8, so for each contract, you have lost $8/unit * 100 unit = $800 Since you posted the initial margin of $2,000 when you entered your short position, at the end of the day, the futures exchange will take away $800 from your account, leaving $1,200 in your account before margin calls.)

It is February today. John plans to buy wheat in three months. Currently, the futures price for the May contract is $8.20 per bushel, and In John's local market, the cash price is $7.50 per bushel. He is worried the price will be much higher in May when he needs to buy wheat. So he uses May futures contracts to long hedge his upcoming purchase. Fast forward to May 5. The futures price for the May contract is $10 per bushel, and in John's local market, the cash price is $9.60/bushel. John lifted his hedge and purchased the wheat in his local cash market. What is the NET price John paid for his wheat using the long hedge strategy? $______/bushel. Only type the numbers, do not type the unit.

7.80

Referring to the same setup as in the previous question (question 8). What is the NET price Andrew received for his soybeans had he not used the hedging strategy, i.e., sell in cash in November and do not use futures contracts to hedge. $______/bushel. Only type the numbers, do not type the unit.

8.60

In the question above, what is the amount of margin call you receive from the futures exchange?

800 (Before margin calls, you have $1,200, this is below the maintenance margin ($1,500 per contract). So you will receive a margin call to bring the account value back to the initial margin of $2,000. So your margin call will be $800.)

Referring to the same setup as in the previous question (question 5). What is the NET price John paid for his wheat had he not used the hedging strategy, i.e., buy in cash in May and do not use futures contracts to hedge. $______/bushel. Only type the numbers, do not type the unit.

9.60

It is April today. Andrew plans to sell soybeans in November after he harvests his beans. Currently, the futures price for the November contract is $10 per bushel, and In John's local market, the cash price is $9 per bushel. He is worried the price will be much lower in November when he sells soybeans. So he uses November futures contracts to short-hedge his upcoming sale. Fast forward to November 12. The futures price for the November contract is $8.80 per bushel, and in Andrew's local market, the cash price is $8.60/per bushel. John lifted his hedge and sold the soybeans in his local cash market. What is the NET price John received for his soybeans using the short hedge strategy? $______/bushel. Only type the numbers, do not type the unit.

9.80

Regarding futures prices, which of the following statement is NOT true?

Futures prices are pre-set by futures exchange.

Regarding the law of one price, which of the following is correct?

All answers Law of one price is the fundamental reason that makes commodities with input-output relationships related. Law of one price is the fundamental reason that makes prices of the same commodity in different locations look similar to each other. Law of one price is the fundamental reason that makes prices of the same commodity in different time periods look similar to each other.

Cost of carrying commodity from one period to the next decreases as the carrying period decreases because:

All correct Storage cost decreases Insurance cost decreases Financing cost decreases

A trader today observes the feeding margin between the December 2023 live cattle contract, and the August 2023 feeder cattle and September 2023 corn contracts. He feels that this margin is too narrow now and will widen by August. This person should:

Buy Dec live cattle contracts, sell August feeder cattle and Sep corn contracts

An ethanol plant that needs to buy corn in three months can hedge rising corn price risk

By taking a long position in corn futures

A farmer who expects to harvest and sell wheat in 5 months can hedge the risk of declining wheat prices:

By taking a short position in wheat futures

Which of the entity has jurisdiction over almost all persons or entities involved in futures trading?

CFTC

Which of the following is NOT true for calendar spread?

Calendar spread always result in higher trading profits.

Which of the following statement is NOT true regarding convenience yield?

Convenience yield tends to be higher when the inventory in the market is high.

Crack spread typically involves trading

Crude oil, gasoline, and diesel futures contracts

One futures contract is traded where both the long and short parties are closing out existing positions. What is the resultant change in the open interest?

Decrease by one

Which of the following is NOT a function of futures trading?

Deliver commodities

It is currently 3/14/2023, and it is the last day of trading for wheat March 2023 contract. You currently long one March contract. You do not want to take delivery of wheat at contract maturity, and want to instead roll the long position forward. What should you do?

Go short on March contract, and go long on May contract

You are trading a copper futures contract for delivery in May 2023 on CME. What is the ticker symbol for this contract?

HGK23

Which of the following is the current marketing year for winter wheat in the United States?

June 1, 2022 to May 31, 2023

Current spread between SAS (Brazilian soybeans) and ZS (US soybeans) futures is 5 cents/bushel. You believe this spread is too narrow and should eventually return to the typical level of 20 cents/bushel. What would you do?

Long ZS short SAS

Suppose you traded a calendar spread on wheat futures contracts. You went long on March wheat futures contract at $12/bushel, and you went short on May wheat futures contract at $13/bushel. Because of a higher wheat supply from Australia, wheat prices have decreased. Now March futures contract is $9/bushel, and May wheat futures contract is $10.5/bushel. You offset your futures positions on March and May contracts. What is your profit /loss from this calendar spread?

Loss of $0.5/bushel

The current date is 1/2/2023. Which of the following wheat futures contract is likely to have the highest trading volume:

March 2023

What is the last trading day of the soybeans May 2023 futures contract traded on CME?

May 12 2023

Which of the following statement is true?

Most of the futures trading never results in actual delivery.

Suppose the price of HRW wheat is $9/bushel in Lewiston and $12 in Portland. The cost of transporting wheat from Lewiston to Portland is $1/bushel. Based on the law of one price, which of the following will happen?

People will buy more wheat in Lewiston and sell in portland

During the delivery process, which of the following is NOT a delivery instrument?

Physical commodity

Which of the following is NOT standardized in futures contracts?

Prices

Which one of the following prices are used to settle daily gains and losses in futures trading?

Settlement price

The soybean crush margin refers to the profit margin for each bushel of soybeans crushed by a soybean crushing facility. Trading soybean crush margin involves trading:

Soybeans, soybean oil, and soybean meal futures contracts

On 1/27, we observe the following cash and futures prices for soft red winter wheat. Why is the spread between July and May delivery much narrower than between other delivery months?

Supply is expected to increase in July because of wheat harvest

Assume the oil market is currently in contango. Which of the following statement is NOT true?

The forward curve for oil is downward-sloping.

Regarding the WASDE report, which of the following statement is NOT true?

WASDE report summarizes the basic supply and demand information for a given commodity in a given calendar year.

Regarding crude oil futures contract, which of the following statement is NOT true?

WTI futures contract prices are typically higher than Brent futures prices.

Which of the following is NOT true regarding futures trading?

You cannot sell a futures contract unless you already own a certain amount of the underlying commodity

Which of the following is true regarding long futures contracts?

You enter into a commitment to buy the commodity of a specified amount at a specified price on a future date.

The initial trade for one April live cattle futures contract (40,000 pounds) is a short at 130.00 cents per pound. This position is offset at a price of 127.50 cents. Ignoring commissions, the outcome of this trade is:

a gain of $1,000.00 (You went short one contract. The price you sold is 130 cents per pound, and the price you offset (went long, or bought) is 127.50 cents. So for each pound, you made 2.5 cents. For one contract, you make 2.5 cents/pound * 40,000 pounds = $1,000.)

What is the name of the price pattern, if futures prices are decreasing in time to maturity?

backwardation

Referring to the same setup as in question 9. Andrew would receive a higher price for his soybeans with the short hedge strategy when:

basis strengthens

The current nearby basis for wheat in your local market is $0.50/bushel. If the basis has strengthened, it means__________________________

cash price has increased relative to futures price

When the futures contract expires, futures contract price will_______________

converge to cash price at futures contract delivery location

Which of the following is not a storable commodity

feeder cattle

Referring to the same setup as in question 5. John would pay a lower price for his wheat with the long hedge strategy when:

the basis in May weakens

Which of the following best describes the term "spot price"?

the price for immediate delivery

Which of the following events is most likely to generate a margin call for a futures trader?

the price is dropping on a long position (If you are long, a price decrease means your position will lose value. You will receive a margin call if the price drop results in your account value falling below the maintenance margin.)