Apr 18, 2016

Finance English practice: Unit 34 — Futures

21 cards
, 98 answers
  • Complete the sentences below. Use the key words if necessary.
    • Commodity futures

      key words
      Forward and futures contracts      ○      Futures      ○      commodities      ○      hedge      ○      standardized      ○      non-standardized      ○      over-the-counter      ○      spot price      ○      backwardation


      are agreements to sell an asset at a fixed price on a fixed date in the future. are traded on a wide range of agricultural products (including wheat, maize, soybeans, pork, beef, sugar, tea, coffee, cocoa and orange juice), industrial metals (aluminium, copper, lead, nickel and zinc), precious metals (gold, silver, platinum and palladium) and oil. These products are known as .

      Futures were invented to enable regular buyers and sellers of commodities to protect themselves against losses or to against future changes in the price. If they both agree to hedge, the seller (e.g. an orange grower) is protected from a fall in price and the buyer (e.g. an orange juiced manufacturer) is protected from a rise in price.

      Futures are contracts — contracts which are for fixed quantities (such as one ton of copper or 100 ounces of gold) and fixed time periods (normally three, six or nine months) — that are traded on a special exchange.

      Forwards are individual, contracts between two parties, traded — directly, between, two companies of financial institutions, rather than through an exchange. The futures price for a commodity is normally higher than its — the price that would be paid for immediate delivery. Sometimes, however, short-term demand pushes the spot price above the future price. This is called .

      Futures and forwards are also used by speculators — people who hope to profit from price changes.

      Financial futures

      key words
      financial futures      ○      fluctuate      ○      Currency futures      ○      forwards      ○      Interest rate futures      ○      Stock futures      ○      stock index futures      ○      zero-sum game


      More recently, have been developed. These are standardized contracts, traded on exchanges, to buy and sell financial assets. Financial assets such as currencies, interest rates, stocks and stock market indexes — continuously vary — so financial futures are used to fix a value for a specified future date (e.g. sell euros for dollars at a rate of €1 for $1.20 on June 30).

      and are contracts that specify the price at which a certain currency will be bought or sold on a specified date.

      are agreements between banks and investors and companies to issue fixed income securities (bonds, certificates of deposit, money market deposits, etc.) at a future date.

      fix a price for a stock and fix a value for an index (e.g. the Dow Jones or the FTSE) on a certain date. They are alternatives to buying the stocks or shares themselves.

      Like futures for physical commodities, financial futures can be used both to hedge and to speculate. Obviously the buyer and seller of a financial future have different opinions about what will happen to exchange rates, interest rates and stock prices. They are both taking an unlimited risk, because there could be huge changes in rates and prices during the period of the contract. Futures trading is a , because the amount of money gained by one party will be the same as the sum lost by the other.

    • British English or American English?
      • aliminium
        • British English
        • American English

      • aluminum
        • American English
        • British English

    • Match the definitions with the words below.
      • 1. the price for the immediate purchase and delivery of a commodity —  . . . 
        spot price
        • commodities
        • spot price
        • backwardation
        • over-the-counter
        • futures
        • to hedge
        • forwards

      • 2. the situation when the current price is higher than the future price —  . . . 
        backwardation
        • backwardation
        • commodities
        • to hedge
        • over-the-counter
        • spot price
        • forwards
        • futures

      • 3. adjective describing a contract made between two businesses, not using an exchange —  . . . 
        over-the-counter
        • futures
        • commodities
        • over-the-counter
        • to hedge
        • forwards
        • backwardation
        • spot price

      • 4. contracts for non-standardized quantities or time periods —  . . . 
        forwards
        • commodities
        • to hedge
        • futures
        • spot price
        • forwards
        • over-the-counter
        • backwardation

      • 5. physical substances, such as food, fuel and metals, than can be bought or sold with futures contracts —  . . . 
        commodities
        • backwardation
        • spot price
        • futures
        • over-the-counter
        • forwards
        • to hedge
        • commodities

      • 6. to protect yourself against loss —  . . . 
        to hedge
        • commodities
        • backwardation
        • spot price
        • to hedge
        • forwards
        • futures
        • over-the-counter

      • 7. contracts to buy or sell standardized quantities —  . . . 
        futures
        • spot price
        • commodities
        • over-the-counter
        • backwardation
        • forwards
        • futures
        • to hedge

    • Complete the sentences.
      • 1.  . . . 
        Commodity futures
        allow food manufacturers to charge a consistent price for their products.
        • Interest rate futures
        • Currency futures
        • Commodity futures

      • 2.  . . . 
        Interest rate futures
        allow investors to be sure of the rate they will get on bonds which could be issued at a different rate in the future.
        • Currency futures
        • Commodity futures
        • Interest rate futures

      • 3.  . . . 
        Interest rate futures
        allow companies to know at what price they can borrow money to finance new projects.
        • Interest rate futures
        • Currency futures
        • Commodity futures

      • 4.  . . . 
        Commodity futures
        allow farmers to make plans knowing what price they will get for their crops.
        • Commodity futures
        • Currency futures
        • Interest rate futures

      • 5.  . . . 
        Interest rate futures
        allow banks to offer fixed lending rates.
        • Commodity futures
        • Currency futures
        • Interest rate futures

      • 6.  . . . 
        Currency futures
        allow importers to remove exchange rate risks from future international purchases.
        • Currency futures
        • Interest rate futures
        • Commodity futures

    • Are the following statements true or false?
      • 1. Financial futures were created because exchange rates, interest rates and stock prices all regularly change. clue
        — Currencies, interest rates, stocks and stock market indexes fluctuate, so financial futures are used to fix a value for a specified future date.
        • true
        • false

      • 2. Interest rate futures are related to stocks and shares. clue
        — Interest rate futures are agreements to issue bonds, certificates of deposit, money market deposits, etc.
        • false
        • true

      • 3. Financial futures contracts allow companies to protect themselves against short-term changes in exchange rates. clue
        — Interest rate futures are agreements between banks and investors and companies to issue fixed income securities at a future date.
        • true
        • false

      • 4. You can only hedge if someone who expects a price to move in the opposite direction is willing to buy or sell a contract. clue
        — The buyer and seller of a financial future have different opinions about what will happen to exchange rates, interest rates and stock prices.
        • true
        • false

      • 5. Both parties can make money out of the same futures contract. clue
        — Futures trading is a zero-sum game, because the amount of money gained by one party will be the same as the sum lost by the other.
        • false
        • true

    © 2020 DrillPal.com