Answer - Low margin requirement
Reason - Trading in future market would have been heavy investment task because shares are to be purchased in lots and lots usually contains thousands of shares in them and if whole amount is to be paid upfront, it would be a risk task to speculate in such market.
There comes the concept of margin money. It is a percentage fixed by the broker which allows the speculator or trader to invest for a larger amount of shares with a small percentage of Money kept as margin with the broker. If the prices of shares fall, the broker may ask for more margin and on the settlement date the profit or loss is set off against margin money.
Due to low margin requirements by brokers the speculators are encouraged to participate in future market.
8.3 Which of the following has provided a major inducement for speculators to participate in the...
Can anyone answer the question and explain it thx alot
The following statement is to be used in answering questions 29 and 30. Company X, a low-rated firm, desires a fixed-rate, long-term loan. X presently has access to floating interest rate funds at a margin of 1.25% over LIBOR. Its direct borrowing cost is 11% in the fixed-rate bond market. In contrast, company Y, which prefers a floating-rate loan, has access to fixed-rate funds in the Eurodollar bond market at...
1. Which of the following trades implies that ownership has been taken? a. Buying a futures contract. b. Selling a futures contract. c. Buying a stock. d. Shorting a stock. e. None of the above implies ownership. The following transactions are the only ones made during the first 4 days a futures contract trades. Answer question 2 based on this table. DAY TRANSACTION S O 1 A Long 30, B Short 30 2 A Long 55, C Short 55 3...
13. Assume there are only three possible outcomes for the sp commodity which underlies a futures contract a contract. As seen today, these prices (i.e. those at the maturi contract) are 90, 100 or 110 and each may occur with probabin ossible outcomes for the spot price of a underlies a futures contract at the maturity of that futures se prices (i.e. those at the maturity of the futures ach may occur with probability 1/3, 1/3 and 1/3. sume that...
Which ones of the following is credited with an important role on the Chicago Mercantile Exchange because, in the process of realizing profit opportunities, they keep futures rates in line with bank forward rates? a. speculators b. hedgers c. arbitrageurs d. currency traders
25) All of the following are roles of a derivative exchange EXCEPT: _____. A) maintaining margin requirements on futures contracts B) reducing the default risk on forward contracts C) performing daily mark-to-market D) reducing the concern of the creditworthiness of market participants
sume there are only three possible outcomes for the spot price of a commodity which underlies a futures contract at the maturity of that futures contract. As seen today, these prices (i.e. those at the maturity of the futures contract) are 90, 100 or 110 and each may occur with probability 1/3, 1/3 and 1/3. Further, assume that futures market prices are set in accordance with the theory of (normal) contango. Which of the following is a potential price that...
2. Suppose the maintenance margin is $5 and initial margin is $10. A long trader trades 10 contract in the market. when the Day 2's ending balance is $40/ what should the trader do? a. Do nothing but keep trading in Day 3 b. Deposit extra $10 c. Deposit extra $60 d. deposit extra $100 e. None above 3. Which of the following statement regarding clearing hours in futures market is wrong? a. Clearing house collects margin b. Clearing house...
Use the following exchange quotes to help answer problems 18-19 NYSE NASDAG Bid Bid Ask 150.13 Company Y 18. Currently you have $120.00 in cash and 1000 shares of Stock Y in your brokerage account. You plan to sell your 1000 shares of Stock Y and use the proceeds to purchase as many shares of Stock X as possible. Assume you cannot borrow or buy partial shares of stock; you will also buy or sell at the best price offered....
e the following exchange quotes to help answer problems 18-19. NYSE NASDAQ Bid Ask Bid Ask CompanyX CompanyY $ 149.55 150.45 149.87 150.13 y YS 127.88 S 128.12 127.70 S 128.30 18. Currently you have $120.00 in cash and 1000 shares of Stock Y in your brokerage account. You plan to sell your 1000 shares of Stock Y and use the proceeds to purchase as many shares of Stock X as possible. Assume you cannot borrow or buy partial shares...
Which of the following statements is most accurate?Briefly explain A. Futures contracts could be private transactions. B. Forward contracts marked to market daily are futures contracts. C. A Forward contract could have the same liquidity as a Futures contracts. D. Futures contracts require that both parties to the transaction have a high degree of creditworthiness.