Margin in a Futures Transaction Differs from Margin in a Stock

question 55

Multiple Choice

Margin in a futures transaction differs from margin in a stock transaction because

• A) stock transactions are much smaller
• B) delivery occurs immediately in a stock transaction
• C) no money is borrowed in a futures transaction
• D) futures are much more volatile
• E) none of the above

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Definitions:

Depreciates

The process through which the value of an asset decreases over time, typically due to wear and tear or obsolescence.

Payback Period

The amount of time it takes for an investment to generate cash flows sufficient to recover its initial cost.

Salvage Value

The projected amount an asset is expected to generate when it is sold after its period of utility has ended.

Operating Costs

Expenses related to the day-to-day operations of a business, including rent, utilities, and salaries.