- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 2. Forward Commitment and Contingent Claim Features and Instruments
- Subject 1. Forward Commitments
CFA Practice Question
Everything on a futures contract is standardized except for?
B. quantity of the commodity
C. quality of the commodity
D. price of the commodity
E. None of them is an exception.
A. delivery date
B. quantity of the commodity
C. quality of the commodity
D. price of the commodity
E. None of them is an exception.
Correct Answer: E
User Contributed Comments 16
| User | Comment |
|---|---|
| Pieter | Anyone can explain to me how the price is standardised? |
| Snider | standardized price means you can get 1 1/8, or 1/32 of a dollar, etc. However you cannot get a random price such as 1.13763. |
| bananabun | how do you stanadardise the quality? |
| 0is4eva | In the reading: "In a futures contract, the price is the only term established by the two parties; the exchange establishes all other terms. Moreover, the terms that are established by the exchange are standardized, meaning that the exchange selects a number of choices for underlyings, expiration dates, and a variety of other contract-specific items. ... With respect to the underlying, a given asset has a variety of specifications and grades. ... The exchange decides at the time it designs the contract. ... The exchange also decides on the price quotation unit e.g. Treasury bond futures are quoted in points and 32nds of par of 100. Hence you will see a price like 104 21/32 which means 104.65625. ..." |
| george2006 | "price quote unit" maybe more clear. |
| Nikita | yeah, how do you standardize quality ? |
| deelo | where you have an underlying that can vary in "quality" (e.g. a commodity) this can be segmented into different grades. |
| gaur | like oil can be specified arabian or texan..you can trade gold only of certain carrats etc |
| octavianus | Answer D refers to the price of the underlying asset (a commodity), not the price of the futures contract |
| jainrajeshv | Octavianus, I can't get you? can you explain it further |
| BunnyBaby | Good one Octavianus, I didn't read that correctly! |
| viannie | the only thing not standardized is the location to deliver the commodity ... which is not an option (no pun intended) in this question |
| Gooner7 | Standardized quality example should be orange juice. If orange juice does not meet predetermined set of standards, that delivery is not considered proper settlement. |
| To-be-CFA | Everything is standardized in futures. Period. |
| ankurwa10 | Well said To-be-CFA. haha. |
| shalie | Standardized-it's terms and conditions are precisely specified by the exchange. |