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Basic Question 7 of 11
Investor A sells one December cotton futures contract. Before the sale can be finalized, Investor A must locate the futures buyer in order to negotiate ______.
B. the quality of cotton
C. the price of cotton
D. None of the above needs to be negotiated, due to the standardization of futures contracts.
A. the quantity of cotton
B. the quality of cotton
C. the price of cotton
D. None of the above needs to be negotiated, due to the standardization of futures contracts.
User Contributed Comments 8
| User | Comment |
|---|---|
| gaur | what about EFP? |
| cp24 | This appears to contradict the answer in question 3 - isn't the price negotiated by the parties in a futures contract? |
| thekapila | ya ...price is negotiated and only thing that is negotiated in future contract |
| thekapila | well i got it...guys read the question "the price of cotton". the price of cotton is standardised but price of contract is not. |
| bobert | thekapila is right. Say you buy a cotton future, the price of the cotton will be standardized, however, the price of the contract will fluctuate due to supply and demand of the market as well as the forward price of the contract amongst other things. Those are the items that would be used in "negotiating" the price of the contract, not the cotton price. |
| johntan1979 | Good question. Difference between the price of the futures contract and price of the underlying assets. |
| ankurwa10 | so, price of underlying is negotiated, but the price of the contract itself is not. |
| GBolt93 | I'm pretty sure the point is that futures are standardized and you never need to "localize" the futures buyer, you are contracting directly with the exchange who is acting as the clearing house. |
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Learning Outcome Statements
define forward contracts, futures contracts, swaps, options (calls and puts), and credit derivatives and compare their basic characteristics
CFA® 2024 Level I Curriculum, Volume 5, Module 2.