1. Vocabulary check. Define the following terms:
a. Spot price
b. Forward vs. futures contract
c. Long vs. short position
d. Basis risk
e. Mark to market
f. Net convenience yield
2. True or false?
a. Hedging transactions in an active futures market have zero or slightly negative NPVs.
b. When you buy a futures contract, you pay now for delivery at a future date.
c. The holder of a financial futures contract misses out on any dividend or interest payments made on the underlying security.
d. The holder of a commodities futures contract does not have to pay for storage costs, but foregoes convenience yield.
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