Which of the following is false about profits from

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67. Which of the following is false about profits from futures contracts? A. The person with the long position gets to decide whether to exercise the futures contract and will only do so if there is a profit to be made. B. It is possible for both the holder of the long position and the holder of the short position to earn a profit. C. The clearinghouse makes most of the profit. D. The amount that the holder of the long position gains must equal the amount that the holder of the short position loses. E. A, B, and C The net profit on the contract is zero - it is a zero-sum game. Difficulty: Moderate 68. Some of the newer futures contracts include I) fashion futures. II) weather futures. III) electricity futures. IV) entertainment futures. Weather and electricity futures are mentioned in the textbook as recent innovations. Difficulty: Easy 22-35
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Chapter 22 - Futures Markets 69. Who guarantees that a futures contract will be fulfilled? Once two parties have agreed to enter the transaction, the clearinghouse becomes the buyer and seller of the contract and guarantees its completion. Difficulty: Easy 70. If you took a long position in a pork bellies futures contract and then forgot about it, what would happen at the expiration of the contract? The item is usually not delivered, but cash settlement can be made through the use of warehouse receipts. You are still obligated to fulfill the contract and give the holder of the short position the value of the pork bellies. Difficulty: Easy 22-36
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Chapter 22 - Futures Markets 71. Hedging a position using futures on another commodity is called A. surrogate hedging. B. cross hedging. C. alternative hedging. D. correlative hedging. E. proxy hedging. Cross-hedging is used in some cases because no futures contract exists for the item you want to hedge. The two commodities should be highly correlated. Difficulty: Easy
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