Daily Changes in Futures Prices Means One Party (Hedger or Speculator)

question 51

Multiple Choice

Daily changes in futures prices means one party (hedger or speculator) has gained while another lost money on the contract. How are the exchanges able to keep the "daily" loser in the contract and prevent default?

• A) by the threat of bankruptcy
• B) by daily margin calls if needed
• C) by loans
• D) by guarantees by third parties

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Definitions:

IPO

IPO stands for Initial Public Offering, which is the process through which a private company goes public by selling its shares to the general public for the first time.

Green Shoe Option

A clause in an IPO that allows underwriters to buy and sell additional shares than originally planned, stabilizing the stock price.

Underpricing Effect

The phenomenon where new stock offerings are priced below their market value, often leading to an immediate increase in their price upon trading.

Market Price

The prevailing transaction price for an asset or service.