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2. Match the words with the definitions below.

a) backwardation

b) to hedge

c) commodities

  1. over-the-counter

e) forwards

f) spot price

g) futures

1 the price for the immediate purchase and delivery of a commodity

2 the situation when the current price is higher than the future price

3 adjective describing a contract made between two businesses, not using an exchange

4 contracts for non-standardized quantities or time periods

5 physical substances, such as food, fuel and metals, that can be bought or sold with futures

contracts

6 to protect yourself against loss

7 contracts to buy or sell standardized quantities

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3. Complete the sentences using a word or phrase from each column.

A Commodity futures allow u) banks

B Interest rate futures allow v) companies

C Currency futures allow w) farmers

x) food manufacturers

y) importers

z) investors

1 .......... ….... to charge a consistent price for their products.

2 .......... …..... to be sure of the rate they will get on bonds which could be issued at a different rate in the future.

3 …..... …...... to know at what price they can borrow money to finance new projects.

4 …...... …..... to make plans knowing what price they will get for their crops.

5 ......... …....... to offer fixed lending rates.

6 …....... ……. to remove exchange rate risks from future international purchases.

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4. Are the following statements true or false?

1. Financial futures were created because exchange rates, interest rates and stock prices all regularly change.

2. Interest rate futures are related to stocks and shares.

3. Financial futures contracts allow companies to protect themselves against short-term changes in exchange rates.

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.

  1. Both parties can make money out of the same futures contract.

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IV.

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