The Typical Sequence of Cash Flows in a Futures Contract

question 49

Multiple Choice

The typical sequence of cash flows in a futures contract is:

• A) purchase price plus a margin account up-front, differences are settled at expiration.
• B) margin account up-front, differences are posted daily and settled in cash if margin drops too low.
• C) margin account up-front, all differences settled at expiration.
• D) all funds are paid at expiration of the contract.

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Definitions:

Own Stock

Refers to the possession of shares in a company, indicating partial ownership.

Corporate Bonds

Debt securities issued by corporations to raise capital, with promise to repay the principal amount along with specified interest rates over a period.

Real Return

The return on an investment after adjusting for inflation, reflecting the actual purchasing power gained or lost.

Inflation

The speed at which the overall price level for goods and services increases, leading to a decrease in buying power.