Free SIE Practice Exam
Series 3
Quiz - 1
Test Your Knowledge

Initial Short Price: $25.50 per ounce.
Cover Price: $26.20 per ounce.
Price Difference: $26.20 - $25.50 = $0.70 loss per ounce.
Each contract is for 5,000 ounces:

Loss per Contract: 5,000 x $0.70 = $3,500.
Total Loss for 4 Contracts: $3,500 x 4 = $14,000.

Value of Each Contract: 200 x 725.00 = $145,000.
Number of Contracts Needed: $750,000 / $145,000 = 5.17 contracts.
For hedging purposes, when the calculation results in a fractional number, you round down to the nearest whole number. Therefore, five contracts are required to hedge the portfolio.

Price Difference: 95.10 - 94.05 = 1.05 (105 basis points).
Loss per Contract: 105 basis points x $25 = $2,625.
Total Loss for 4 Contracts: $2,625 x 4 = $10,500.
Total Loss with Commission: $10,500 + $200 = $10,700.

Explanation:

Initial Position: Long at 96-16 (96 and 16/32).
Liquidation Price: Sold at 97-04 (97 and 4/32).
Price Difference: 97-04 - 96-16 = 20/32.
Each 1/32 point is worth $31.25:

Gain per Contract: 20 x $31.25 = $625.
Total Gain for 4 Contracts: $625 x 4 = $2,500.

A buy stop order is placed above the current market price and becomes a market order when the contract price reaches or exceeds the stop price. For example, if a trader sets a buy stop order for a futures contract at 55.50, the order will be triggered if the contract trades at 55.50 or higher, or if there is a bid at 55.50 or higher. Once triggered, the order is executed at the best available price, which may be higher than the stop price due to market conditions.

An increase in foreign investment typically raises demand for a country’s currency, as foreign investors need the local currency to make investments within the country. This heightened demand can lead to an appreciation of the currency's value. In contrast, a trade deficit, an increase in the money supply, or a decrease in export demand would generally place downward pressure on the currency's value.

When open interest increases while prices are going down, new buyers and new sellers are entering the market, with sellers being more aggressive than buyers. This indicates a technically weak market, as the increase in open interest, coupled with falling prices, suggests that selling pressure is strong.

According to regulations, an FCM or associated person may rely on the customer as the sole source of background information and is not required to verify or independently confirm this information. If the customer refuses to provide details beyond name, address, age, and occupation, the FCM or associated person may still open the account, provided they make a written record of the refusal and the account is properly approved. This allows the FCM to meet regulatory requirements without imposing an undue verification burden.

Offsetting a futures position involves taking an opposite position in the same contract. For a trader who initially went long (bought a contract), offsetting requires selling a contract for the same commodity with the same expiration date. This action cancels out the original position, relieving the trader of the obligation to take delivery of the commodity when the contract expires.