Series 3 - National Commodity Futures Exam - Flashcard Drill Jg

Front 1

March 478 soybean futures contracts and May 471 soybean futures contracts are expected to widen, in relation to each other. This represents what type of spread?

Back 1

BULL SPREAD, INVERTED MARKET

Notice that the higher nearby price and lower distant futures price reflects an INVERTED market. To profit when prices are expected to WIDEN spreader must buy (long) nearby and sell (short) distant, which is BULLISH.

Front 2

An investor is long the near-term contract and short the distant contract. This represents what type of spread?

Back 2

BULL SPREAD

In a bull spread and normal market the investor wants the price difference (spread) to narrow - inverted, widen.

Front 3

In an inverted futures market the bear spreader wants the price difference to __________ to profit.

Back 3

NARROW

A Bear spreader shorts the nearby contract and buys the distant contract.

Front 4

In an inverted futures market the bull spreader wants the price difference to __________ to profit.

Back 4

WIDEN

A Bull spreader goes long the nearby contract and shorts the distant contract.

Front 5

A bear spread in a normal futures market faces unlimited risk.

True or False?

Back 5

TRUE

Hypothetically, the nearby contract (the short position) can increase to any amount and the spreader would have to offset at that price.

Front 6

An investor is short the near-term contract and long the long-term contract. This represents what type of spread?

Back 6

BEAR SPREAD

In a bear spread under normal market conditions the investor wants the price difference to widen - inverted, narrow.

Front 7

A manufacturer goes long futures to hedge a later purchase of raw material and shorts futures to hedge the future sale of a finished product.
This represents what type of spread?

Back 7

PROCESSING SPREAD (HEDGE)

The hedger is protects the purchase of his input and protects the sale of his output.

Front 8

A spreader long crude oil futures and short gasoline futures is an example of what type of processor spread?

Back 8

CRACK SPREAD

Crack spreads involve oil refineries.

Front 9

A spreader long feeder cattle and soy meal futures and short live cattle futures is an example of what type of processor spread?

Back 9

CATTLE FEEDERS SPREAD

The hedger hedges the later purchase of young cattle and feed while protecting the later sale of live (fat) cattle.

Front 10

A spread long soybean futures and short soybean oil and meat futures is an example of what type of processor spread?

Back 10

CRUSH SPREAD

Front 11

A person who may profit from selling soybean futures and buying soybean oil is exercising what type of spread?

Back 11

REVERSE CRUSH SPREAD

This person is taking a SPECULATIVE position, therefore it is opposite of a crush spread.

Front 12

If a spreader notes February cotton is at $0.50 and May cotton is overpriced relative to February at $0.60 the investor should __________.

Back 12

BUY FEBRUARY, SHORT MAY

Front 13

How does one calculate EFFECTIVE PRICE?

Back 13

Initial cash price +/- basis change
OR
Final cash price +/- change in futures position

Front 14

This approach forecasts prices by studying the influences of supply and demand along with other economic forces.

Back 14

FUNDAMENTAL ANALYSIS

This includes imports and exports, government programs and even weather.

Front 15

What entity administers a special loan program for farmers to support prices?

Back 15

COMMODITY CREDIT CORPORATION (CCC)

Front 16

This entity has regulatory authority over all domestic futures and futures options activity. Its role is to ensure the futures markets are operated in the public interest.

Back 16

COMMODITIES FUTURES TRADING COMMISSION (CFTC)

Front 17

This self-regulatory organization supervises the activities of all participants that conduct futures business with the public.

Back 17

NATIONAL FUTURES ASSOCIATION (NFA)

Front 18

This group investigates transactions of member firms and their customers. They also audit member compliance with regulations and financial requirements. Formal complaints are issued by them.

Back 18

BUSINESS CONDUCT COMMITTEE

An exchange committee.

Front 19

Who selects the commodities and contract terms (quality, delivery sites, size, price limit, maximum range, etc.) for designation as a contract market?

Back 19

the exchange

Front 20

This group conducts member audits and examinations and investigates complaints and violations of NFA regulations.

Back 20

OFFICE of COMPLIANCE (NFA)

Front 21

A CTA cannot hold customer assets unless the organization is an FCM also registered as a CTA.

True or False?

Back 21

TRUE

Front 22

A CTA does not require registration as a CPO if it is NOT engaged in forming or operating commodity pools.

Back 22

TRUE

Regardless of how many pools the CTA ADVISES it does not have to register as a CPO.

Front 23

Pools with net assets less than $500,000 require statements to be sent __________.

Back 23

QUARTERLY

Front 24

Pools with net assets of $500,000 or more require statements to be sent __________.

Back 24

MONTHLY

Front 25

A CPO's performance record must be updated __________.

Back 25

MONTHLY

Front 26

CPO are required to disclose prior performance for the last __________, if the pool has operated more than three years.

Back 26

THREE YEARS

Front 27

CPOs are required to disclose business activities for the past __________ of the CPO, each of its principals, the CTA and each of the CTA's principals.

Back 27

FIVE YEARS

Front 28

You are a skilled broker with a year of experience. A client has expressed interest in granting power of attorney for a discretionary account. You are allowed to handle that account.

Back 28

FALSE

An AP (associated person) must have two years experience as a registered commodities representative.

Front 29

In addition to revoking one's registration, the CFTC can impose criminal proceedings with felony violations punishable by fines up to $500,000 and/or 5 years' imprisonment.

Back 29

FALSE

Matters regarding criminal violations are referred to the U.S. Department of Justice.

Front 30

Since stock index futures and stock index futures option contracts are based on a portfolio of securities they are regulated by the SEC. True or False?

Back 30

FALSE

Because they are futures or futures option contracts the CFTC has regulatory authority

Front 31

You enter a long futures contract position for $0.65/bl when cotton trades at $0.61. At closing cotton trades for $0.63. What will the investor pay per bushel upon delivery?

Back 31

$0.63/BUSHEL

The delivery price is based on the settlement price regardless of the price at which the investor established the futures position. Any gains or losses from price movements would have already been credited to or debited against the customer's account. These adjustments are made daily.

Front 32

Settlement Price and Closing Price are the same thing.

True or False?

Back 32

FALSE

Settlement price is used to determine gains or losses on open futures positions. Closing price is the price of the last trade reported at the end of the trading session.

Front 33

Situations where a hedger exchanges futures positions for cash commodities or moving open customer futures positions from one FCM to another is an example of?

Back 33

EX-PIT TRANSACTIONS

AKA exchange for physicals, exchange against actuals

Front 34

Spread stop orders, cross-trades and OCO orders are prohibited on the CBOT.

True of False?

Back 34

TRUE

Front 35

Stop limit orders become market order when the commodity trades at the stop price.

True or False?

Back 35

FALSE

When the market trades at the stop price, a stop limit order then operates as a limit order.

Front 36

A buy MIT order becomes a market order when the order price trades or offers at or below the specified price.

True or False?

Back 36

TRUE

Buy MIT orders are placed BELOW the market price.

Front 37

A buy MIT order becomes a market order when the order price bids at or below the specified price.

True or False?

Back 37

FALSE

Note! Buy MIT orders are triggered only when the order price TRADES or OFFERS at or below the specified price.

Front 38

All orders are considered to be day orders unless designated otherwise.

True or False?

Back 38

TRUE

Front 39

T bill futures trade on the __________.

Back 39

IMM (International Monetary Market)

A division of the Chicago Mercantile Exchange (CME)

Front 40

The CBOT (Chicago Board of Trade) reports visible supply reports on Mondays.

True or False?

Back 40

TRUE

Front 41

This type of chart normalizes daily price swings to provide the chartist with a clearer view of the underlying trend.

Back 41

MOVING-AVERAGE CHARTS

Front 42

Volume equals open long or open short positions in a commodity.

True or False?

Back 42

FALSE

Volume indicates the number of contracts traded. Every trade involves BOTH a buyer and seller. To avoid double counting, volume equals the number of contracts bought OR sold.

Front 43

The total number of futures contracts long or short in a delivery month or market that has been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery.

Back 43

OPEN INTEREST

Front 44

The most effective way for the Federal Reserve Bank to increase or decrease interest rates is to buy and sell Treasury securities (from and to banks) for its own portfolio.

True or False?

Back 44

TRUE

The most effective way for the FRB to increase or decrease interest rates is to use open market operations.

Front 45

A futures bear spread in an inverted market has UNLIMITED RISK and UNLIMITED PROFIT potential.

True or False?

Back 45

FALSE

A futures bear spread in an inverted market has unlimited risk and limited profit.

Front 46

In a normal market, the difference between near and deferred futures contracts.

Back 46

CARRYING CHARGES

Reflects the costs of of holding inventory.

Front 47

The difference between prices of the spot and futures markets.

Back 47

BASIS

Front 48

A position that combines short futures contracts and long calls.

Back 48

SYNTHETIC PUTS

They lead to increasing gains as prices fall, limited loss when prices rise.

Front 49

Falling interest rates have what type of effect on metals?

Back 49

BULLISH

Normally, investors will be more willing to buy or hold metals and receive no/low interest on their cash investments.

Front 50

Rising interest rates have what type of effect on metals?

Back 50

BEARISH

High interest rates tend to attract money to interest-bearing investments.

Front 51

Each day the clearinghouse determines the margin requirement of the speculative and hedging customers of all brokerage houses.

True or False?

Back 51

FALSE

The clearinghouse determines the margin requirements of all clearinghouse MEMBER FIRMS each day. The clearinghouse DOES NOT deal directly with PEOPLE.

Front 52

An trader establishes a position by “going long” 1 DMX Oct 40 call, paying a $325 premium. Two weeks later the customer sells the call for $455. The sell ticket will be marked 'Closing Purchase'.

True of False?

Back 52

FALSE

When the customer establishes a new long position, it is considered an OPENING PURCHASE. When the customer closes out a long position, it is marked CLOSING SALE.

Front 53

An investor is short futures and long call. What is their position?

Back 53

SYNTHETIC PUT

Synthetic puts combine short futures contracts and long calls; which gains as prices fall and protects with limited loss if prices rise.

Front 54

What is the tick for short-term debt such as T-bills and the Euro?

Back 54

0.005 OR $12.50

Front 55

What is the tick for long-term debt such as T-notes, T-bonds, and GNMA?

Back 55

1/32 OR $31.25

Front 56

T-bills and the Euro trade on which exchange?

Back 56

IMM (International Monetary Market ) division of CME (Chicago Mercantile Exchange)

Front 57

T-notes, T-bonds, GNMA, and Muni index trade on which exchange?

Back 57

CBOT (Chicago Board of Trade)

Front 58

A simultaneous purchase of one option and sale of another option of the same class.

Back 58

SPREAD

Front 59

Copies of written customer complaints must be forwarded to the CFTC prior to their final disposition.

Back 59

FALSE

Copies of written customer complaints must be forwarded to the NFA.

Front 60

A large number of available futures contracts with no demand describes an oversold market.

True or False

Back 60

FALSE

A large number of available futures contracts with no demand describes a BUYERS market.

Front 61

Under NFA Rule 2-9, members are not required to maintain written supervisory materials relative to promotional materials if the FCM continuously demonstrates fairness in the preparation and use of its promotional materials.

Back 61

FALSE

Members must maintain written supervisory procedures for development, review, and use of promotional materials.

Front 62

An order to buy a commodity at $1,40 stop cannot be filled at $1.41

True or False?

Back 62

FALSE

A stop order activates a MARKET ORDER which can be executed at any "fair" current price. In a fast market, the $1.40 price might go tripper the stop, then move higher before the order can be filled.

Front 63

A CTA that has been registered for 10 years must disclose its performance for the previous __________ years.

Back 63

FIVE YEARS

Front 64

Situations that may be resolved under NFA arbitration include transactions that occurred in the cash commodity market.

True or False?

Back 64

FALSE

NFA arbitration does not settle disputes regarding cash market transactions.

Front 65

Spot prices above futures prices typically reflect __________.

Back 65

TIGHT SUPPLIES

Front 66

Upfront fees include a CPO's initial management fee as well as attorney and accounting fees.

True or False?

Back 66

FALSE

Upfront fees do NOT include initial CTA management fees.

Front 67

Advisors must maintain records relative to their advisory business that area available for inspection within __________ of CFTC request.

Back 67

72 HOURS

Front 68

A customer exercises a 200 corn put when the underlying futures price is $1.90. She acquires a short futures position at __________.

Back 68

$2.00

Front 69

The final settlement price on the NYSE Composite Index Futures contract is the actual NYSE Composite Index quote rounded to the nearest __________.

Back 69

.01

Front 70

An FCM or independent IB must file its net capital computation within how many days of the reporting quarter?

Back 70

17 BUSINESS DAYS

Front 71

If the position of a hedge account is at the CFTC's reporting level, the account must report all activities __________.

Back 71

DAILY

Front 72

If the position of a hedge account is at the CFTC's reporting level, exchanges must file reports __________, relative to accounts exceeding reporting levels.

Back 72

WEEKLY

Such accounts are called special accounts.

Front 73

Authorization to trade a futures account on behalf of a corporation is found in the __________.

Back 73

CORPORATE RESOLUTION

Front 74

A commodity futures settlement price is determined by the __________.

Back 74

CLEARINGHOUSE

Front 75

A customer is short a T bond April futures and long a T bond June futures. The prices are: April 98.20 and June 99.24. The difference in the futures prices widens. Do they gain or lose? Is this normal or inverted?

Back 75

GAIN, INVERTED

A normal market in bonds or any debt has the nearby higher than the extended contracts because a holder of debt gets paid interest rather then incur costs by holding it.

Front 76

FCMs or IBs must time-stamp futures and commodity option orders to the nearest __________.

True of False

Back 76

MINUTE

Front 77

When is a member firm required to deposit initial margin with the clearinghouse of the exchange?

Back 77

BEFORE THE OPENING OF THE MARKET ON THE FOLLOWING DAY

Front 78

If an AP wishes to appeal a decision made by the Regional Business Conduct Committee, he or she must do so within how many days?

Back 78

15 DAYS

Front 79

"Assignment", as it relates to options, means what?

Back 79

NOTIFYING THE SELLER OF A PUT OR CALL THAT THE BUYER HAS EXERCISED THE OPTION

Front 80

For disputes not involving customers, summary arbitration is required if the amount claimed is __________.

Back 80

$10,000 OR LESS

Front 81

Transfer of ownership of the commodity happens when?

Back 81

WHEN THE COMMODITY IS ACTUALLY DELIVERED

Front 82

NFA rules state that introducing brokers must maintain a minimum of $20,000 of net capital.

True or False?

Back 82

FALSE

NFA rules state that introducing brokers must maintain a minimum of $30,000 of net capital.

Front 83

A firm that is a member of the clearinghouse must satisfy margin for all new positions __________.

Back 83

BEFORE THE OPENING OF THE MARKET ON THE FOLLOWING DAY

Front 84

The price of a T bill contract is MOST affected by __________.

Back 84

OPEN MARKET OPERATIONS (ACTIVITIES)

Front 85

A sell stop limit order becomes activated when the commodity trades or is offered at __________.

Back 85

STOP PRICE OR BELOW

Front 86

Pension fund managers operating an equity portfolio of select stocks and conservative growth fund managers hedge by taking what position?

Back 86

SELLING FUTURES/GOING SHORT

Front 87

Which entity issues a listed commodity option?

Back 87

EXCHANGE CLEARINGHOUSE

Front 88

Regional Business Conduct Committee can fine an NFA member up to __________ for violating NFA rules.

Back 88

$100,000

Front 89

Who has ultimate responsibility for collecting margin calls?

Back 89

REGISTERED REPRESENTATIVE

Front 90

Pension Fund Managers hedge equity portfolio of select stocks by buying puts.

True or False?

Back 90

TRUE

They would NOT SELL futures because that would cancel out any gain on market appreciation.

Front 91

Who issues listed commodity options?

Back 91

EXCHANGE CLEARINGHOUSE

Front 92

A pool operator acting as a trading advisor but giving trade advice only to her own pool must be registered as a CPO/CTA.

True or False?

Back 92

FALSE

Front 93

A buyer of EMINI futures contracts takes delivery in __________.

Back 93

CASH