Section 4

Front 1

T/F
If a good is held, price fluctuation risk has been assumed, along with the costs associated with holding the good.

Back 1

True

Front 2

Carrying Costs

Back 2

holding costs

Front 3

insurance
interest
storage fees

Back 3

Types of carrying charges

Front 4

Storage charges are frequently stated per ____ per month

Back 4

unit

Front 5

________ charges and insurance are calculated on the value of the stored commodity

Back 5

Interest

Front 6

T/F
The price of goods held for future delivery reflects carrying costs

Back 6

TRUE

Front 7

A ______ market maintains non-interest rate futures prices at a premium above cash prices.

Back 7

NORMAL

Front 8

Premium market = ____market

Back 8

NORMAL

Front 9

As the delivery date approaches prices adjust to reflect the ________ carrying charges

Back 9

LOWER

Front 10

An ________ market for non-financial contracts discounts futures prices from cash prices and may be caused by a current shortage or unusual demand

Back 10

INVERTED

Front 11

Discount Market = ______ market

Back 11

Inverted

Front 12

hedgers of goods not wishing to assume _____ of _________ can reduce their total risk by hedging their cash positions in the futures markets

Back 12

risk of price fluctuation

Front 13

to take a futures position of approximately the same size, but opposite in price risk, from the cash position being hedged

Back 13

HEDGING

Front 14

The difference between the cash and futures prices

Back 14

full carrying charge market

Front 15

A ____ hedge (substitute sale) in a full carrying charge market is most effective when the cash (spot) price declines, but is advantageous at all times as a tool for risk reduction

Back 15

SELL

Front 16

a long hedge utilized by someone who has use for a commodity at a later date

Back 16

anticipatory hedge

Front 17

Recommend a buy hedge to lock in a profit margin (fixed sale price)

Back 17

Forward Sale

Front 18

Recommend a sell hedge to lock in profit margin (fixed purchase price)

Back 18

Forward Purchase

Front 19

Are hedging techniques effective in BOTH the long run and short run?

Back 19

YES

Front 20

What should hedging be used for

Back 20

As an income and cost smoothing tool

Front 21

What do hedging profits contribute to?

Back 21

Cost of Carry

Front 22

What can hedging be thought of?

Back 22

An insurance policy protecting the holder from adverse price movements

Front 23

Buying later in the cash market

Back 23

Long Hedge

Front 24

Selling later in the cash market

Back 24

Short Hedge

Front 25

The hedger has (or needs) the commodity specified for delivery in the contract

Back 25

Direct Hedging

Front 26

Hedging something other than what is deliverable on the contract

Back 26

Cross Hedge

Front 27

A farmer growing #2 yellow corn

Back 27

DIRECT HEDGE

Front 28

Corporate treasurer hedging the issue of commercial paper with eurodollar time deposits

Back 28

CROSS HEDGE

Front 29

Hedge used by producer

Back 29

production hedge

Front 30

hedge used by someone holding a physical commodity for sale in the cash market at a later date and wishes to target a sales price while the goods remain in storage

Back 30

storage hedge

Front 31

adjustment of a hedge position to an anticipated cash transaction, or an adjustment to the delivery / receipt target date

Back 31

rolling hedge

Front 32

The difference between the cash price and the futures price of a commodity

Back 32

BASIS

Front 33

CASH - _______ = Basis

Back 33

FUTURES

Front 34

Inverted Market

Back 34

Premium Basis

Front 35

Normal Market

Back 35

Discount Basis

Front 36

How are MIT orders similiar to stop orders?

Back 36

1. they are activated whenthe market price reaces the stop price
2. They become market orders once they are activated

Front 37

Where is a buy MIT order placed?

Back 37

Below the current market price , and establishes a long position or closes a short position

Front 38

Where is a sell MIT order placed?

Back 38

Above the current market position, and establishes a short poition or closes a long position

Front 39

When are MIT orders used?

Back 39

They are used during the continuation of a current trend

Front 40

T/F
MIT and STOP orders are lower priority than market orders, and are thus filled after market orders

Back 40

TRUE

Front 41

Order used to buy or sell at a specified price, or better

Back 41

LIMIT order

Front 42

Where is a BUY limit order placed?

Back 42

It is placed below te current market price, and will be filled only at or below the limit price

Front 43

When is a SELL limit order filled?

Back 43

It is placed above the current market price, and wll be filled only at or above the limit price

Front 44

T/F
OB (Or Better) must be included in the limit order

Back 44

FALSE

Front 45

What market are limit orders used in?

Back 45

Thin or less liquid markets

Front 46

Are limit orders the lowest priority order?

Back 46

YES
They are filled after market, stop, and MIT orders

Front 47

Is a limit order entitled to a fill?

Back 47

No.
Because of their low priority, they may not get filled even if the market touches them