CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

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 ______.

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.
Correct Answer: D

Provisions of futures contracts are determined by the exchange on which they are traded. Individual negotiations are not necessary.

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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