254 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES
5.8 Test Your Understanding
5.8.1 Quiz Questions
- For each pair shown below, which of the two describes a forward contract?
Which describes a futures contract?
(a) standardized/made to order
(b) interest rate risk/no interest rate risk
(c) ruin risk/no ruin risk
(d) short maturities/even shorter maturities
(e) no secondary market/liquid secondary market
(f) for hedgers/speculators
(g) more expensive/less expensive
(h) no credit risk/credit risk
(i) organized market/no organized market- Match the vocabulary below with the following statements.
(1) organized market (11) maintenance margin
(2) standardized contract (12) margin call
(3) standardized expiration (13) variation margin
(4) clearing corporation (14) open interest
(5) daily recontracting (15) interest rate risk
(6) marking to market (16) cross-hedge
(7) convergence (17) delta-hedge
(8) settlement price (18) delta-cross-hedge
(9) default risk of a future (19) ruin risk
(10) initial margin
(a) Daily payment of the change in a forward or futures price.
(b) The collateral deposited as a guarantee when a futures position is opened.
(c) Daily payment of the discounted change in a forward price.
(d) The minimum level of collateral on deposit as a guarantee for a futures
position.
(e) A hedge on a currency for which no futures contracts exist and for an
expiration other than what the buyer or seller of the contract desires.
(f) An additional deposit of collateral for a margin account that has fallen
below its maintenance level.
(g) A contract for a standardized number of units of a good to be delivered
at a standardized date.