Commodity Derivatives Certification Free Demo Test 8

Explanation:

Comparative movement in the value of a currency of a country in relation to the major global currencies is very important for prices of commodities in that particular country. Most of the commodities globally are denominated in the US dollar (USD). Hence, when the currency of a particular country appreciates against the USD, the price of the commodity in that particular country becomes cheaper and vice versa.

Explanation:

In the commodity Pay in process the clearing member will transfer the warehouse receipt to the clearing corporation.

(A Warehouse Receipt is a document of title to goods issued by a warehouse service provider to a person depositing commodities in the warehouse, evidencing storage of goods.)

Explanation:

Settlement process involves matching the outstanding buy and sell instructions, by transferring the commodities ownership against funds between buyer and seller.

In other words, settlement refers to the process of adjusting financial positions of the parties to the trade transactions to reflect the net amounts due to them or due from them.

Explanation:

In a forward contract, the terms of the contract is tailored to suit the needs of the buyer and the seller. Generally, no money changes hands when the contract is first negotiated and it is settled at maturity. These forward contracts, many a times are not honored by either of the contracting parties due to price changes and market conditions. Hence, counter-party credit risk exists and settlement failure is a possibility in case of forwards contracts.

Explanation:

The Securities Contract (Regulation) Act, 1956 (SCRA) gives SEBI the jurisdiction over stock exchanges through recognition and supervision. It also gives SEBI the jurisdiction over contracts in securities and listing of securities on stock exchanges.

Explanation:

By selling gold in the forward contract, the bank has already gone short.

Now it has to hedge its position to avoid losses in case price of gold rises.

Buy buying a call option, it will protect it self against any rise in gold prices by paying the option premium

In case the prices fall, it will benefit as it has already sold gold in the forward contract. The only loss in this will be the small call option premium it has paid.

Explanation:

Volatility is the magnitude of movement in the underlying asset’s price, either up or down. It affects both call and put options in the same way.

Higher volatility = Higher premium, Lower volatility = Lower premium (for both call and put options).

Explanation:

Position Traders are the subset of speculators who maintain overnight positions, which may run into weeks or even months, in anticipation of favourable movement in the commodity futures prices.

They may hold positions in which they run huge risks and with a possibility to earn big profits if their directional call proved to be correct.

Explanation:

In a market order, the trade is executed at the immediately available current market price, prevailing at the time of placing the order.

Explanation:

In a limit order, the buyer or seller specifies the price at which the trade should be executed. For a buyer, the limit order generally remains below the on-going asking price and for a seller the limit order remains above the then bid price.