GSC ABC School: Position Reports

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| By Cooperlatham

Cooperlatham

Community Contributor

Quizzes Created: 2 | Total Attempts: 180

Questions: 10 | Attempts: 97 | Updated: Dec 14, 2023

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Questions and Answers

1.

What is the term for when a firm takes a long or short position in futures ahead of an anticipated cash transaction?
- A.
  
  Futures exchange
- B.
  
  Prehedge
- C.
  
  Spread
Correct Answer
B. Prehedge

Explanation
Prehedge refers to the practice of a firm taking a long or short position in futures before a cash transaction is expected to occur. This strategy allows the firm to protect itself from potential price fluctuations in the future, ensuring a more stable outcome for the anticipated cash transaction. By taking a position in futures ahead of time, the firm can mitigate risks and potentially secure more favorable terms for the transaction.

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2.

Which factor has reduced but not eliminated the use of prehedging?
- A.
  
  Mini contracts
- B.
  
  Unpredictable weather
- C.
  
  The "cloud"
- D.
  
  Overnight electronic trading
Correct Answer
D. Overnight electronic trading

Explanation
Overnight electronic trading has reduced the use of prehedging, but it has not completely eliminated it. This means that while prehedging is still used to some extent, the introduction of overnight electronic trading has significantly reduced its necessity.

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3.

Each of the major types of risk are unaffected by futures market movement
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
The statement suggests that the major types of risk, such as market risk, credit risk, and operational risk, are not influenced by the movement of the futures market. This means that changes in the prices or values of futures contracts do not directly impact these risks. It is important to note that while futures market movement may not directly affect these risks, they can still indirectly impact them through factors such as market sentiment or liquidity conditions.

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4.

A key component of managing risk is to keep track of all company positions including inventory, purchases, sales, and hedges.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Keeping track of all company positions including inventory, purchases, sales, and hedges is indeed a key component of managing risk. By closely monitoring these factors, a company can identify potential risks and take appropriate actions to mitigate them. This allows for better decision-making, improved risk management strategies, and ultimately, helps in minimizing potential losses and maximizing profits.

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5.

A report for management which purpose is to provide information on the company's exposure to price and basis risk is known as what?
- A.
  
  Equity run
- B.
  
  Monthly statement
- C.
  
  Report card
- D.
  
  Position report
Correct Answer
D. Position report

Explanation
A position report is a report that provides information on a company's exposure to price and basis risk. It gives management an overview of the company's current positions in various financial instruments and helps them understand the potential risks associated with these positions. This report is essential for making informed decisions regarding hedging strategies and managing the company's overall risk exposure.

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6.

Which of the following is NOT a function of the merchandising position log?
- A.
  
  To be a permanent, centralized record of all priced long/short transactions
- B.
  
  To help you in tracking current and future market movement
- C.
  
  To keep your price-risk position "up to the minute"
- D.
  
  To serve as a cross-check to the daily position report, calculated the "standard" way
Correct Answer
B. To help you in tracking current and future market movement

Explanation
The merchandising position log is not used to track current and future market movement. It is used to keep a record of priced long/short transactions, maintain an up-to-date price-risk position, and serve as a cross-check to the daily position report. Tracking market movement is typically done through other tools and analysis methods.

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7.

Which of the following choices are some of the fundamental objectives of a grain merchandiser?
- A.
  
  Get rich by any means necessary
- B.
  
  To shield his/her business from losses due to price risk
- C.
  
  To increase his/her profit margins by capitalizing on favorable basis movements
- D.
  
  Buy high, sell low
Correct Answer(s)
B. To shield his/her business from losses due to price risk
C. To increase his/her profit margins by capitalizing on favorable basis movements

Explanation
The fundamental objectives of a grain merchandiser are to shield his/her business from losses due to price risk and to increase profit margins by capitalizing on favorable basis movements. This means that the merchandiser aims to protect their business from potential losses caused by fluctuations in grain prices and to maximize profits by taking advantage of favorable changes in the price difference between the cash market and the futures market.

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8.

Which of the following does have basis risk?
- A.
  
  Delayed price (DP) inventory
- B.
  
  HTA contracts
- C.
  
  Grain with storage obligations against it
- D.
  
  All of the above
- E.
  
  None of the above
Correct Answer
E. None of the above

Explanation
DP inventory and HTA contracts will have the basis set at some point. Some merchants might include those in basis risk That's a philosophical debate. Most merchandisers wand their basis risk position to only show quantities on which the basis is already set.

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Current Version
Dec 14, 2023

Quiz Edited by
ProProfs Editorial Team
Jul 26, 2013

Quiz Created by
Cooperlatham

GSC ABC School: Position Reports

What is the term for when a firm takes a long or short position in futures ahead of an anticipated cash transaction?

Which factor has reduced but not eliminated the use of prehedging?

Each of the major types of risk are unaffected by futures market movement

A key component of managing risk is to keep track of all company positions including inventory, purchases, sales, and hedges.

A report for management which purpose is to provide information on the company's exposure to price and basis risk is known as what?

Which of the following is NOT a function of the merchandising position log?

Which of the following choices are some of the fundamental objectives of a grain merchandiser?

Which of the following does have basis risk?