Which of the following features are shared by futures contracts and options? I.

Question

Which of the following features are shared by futures contracts and options?

I.   They have specified expiration dates.

II.   Their value is derived from changes in the value of some other asset

III.   unprofitable futures or options can simply be allowed expire unexercised.

IV.   futures and options specify a specific price at which the underlying asset can be bought or sold.

A) I and III only

B) I and IV only

C) II and III only

D) I, and II only

With futures contracts, the price at which the commodity must be delivered is

A) set when the futures contract is sold.

B) set when the contract expires.

C) is equivalent to the strike price for an options contract.

D) changes frequently during the life of the contract.

Fred purchased a futures contract on live hogs through Broker A. After purchasing the contract, Fred moved his investments to Broker B. During the transition, the contract on the hogs was forgotten. When the delivery date for the futures contract arrived,

A) the pigs were not delivered because Fred did not ask for them.

B) the futures contract was not exercised.

C) Fred took delivery of live hogs.

D) Broker A had to pay for the hogs so that they would not be delivered to Fred.

Explanation / Answer

Futures contract: a contract between two persons to settle a transaction on a specified future date at a specified future price. Futures cotract binding on the both parties of the contract and enforceable by law for non performance.

Therfore, option B is correct.

Futures value does not get affect by change in value of any other underlying asset. It is a indpendent contract.

Unprofitable futures contracts cannot be simply left unexercised. Futures contracts have legal enforceability.

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