Which of the Following Is True About Profits from Futures

question 26

Multiple Choice

Which of the following is true about profits from futures contracts?

• A)The person with the long position gets to decide whether to exercise the futures contract and will only do so if there is a profit to be made.
• B)It is possible for both the holder of the long position and the holder of the short position to earn a profit.
• C)The clearinghouse makes most of the profit.
• D)The amount that the holder of the long position gains must equal the amount that the holder of the short position loses.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production expenses, in contrast to fixed costs.

Fixed Manufacturing Cost

Expenses that do not change with the level of production, such as rent for factory premises, salaries for permanent staff, and depreciation of equipment.

Manufacturing Overhead Cost

Expenses related to the production process that are not directly tied to a specific product, including utilities, depreciation, and salaries for production supervisors.

Period Costs

Costs that are expensed in the period they are incurred, not directly tied to the production of goods, such as selling, general, and administrative expenses.