Examkin

Question

Difficulty: MediumConcept and Classification of Markets

On the AFEX Commodities Exchange in Nigeria, grain dealers contract to trade bulk maize where the price is agreed upon today, but physical delivery and payment take place three months in the future. Based on the timing of delivery, which type of market does this transaction represent?

  1. Futures marketAnswer
  2. B
    Spot market
  3. C
    Money market
  4. D
    Capital market

Answer

The transaction represents a futures market because contracts are executed for delivery and settlement at a specified future date.
Markets classified by the nature and timing of delivery fall into spot markets (immediate exchange) and futures markets (contracted for a future date). Because the contract specifies price today with settlement three months later, it is a classic futures market transaction.

Step-by-Step Solution

1
Analyze the timing of transaction and delivery in the stem scenario.
The price is negotiated immediately, but physical delivery and final settlement take place three months later.
Market classification by time or delivery tenure distinguishes immediate exchanges from deferred exchanges.
2
Match the transaction characteristics to standard market classifications.
Transactions involving price agreement today for future delivery represent futures (or forward) markets, whereas immediate cash and delivery represent spot markets.
This structural definition separates spot transactions from derivative/futures transactions.

Key Concept

Classification of Markets by Time of Delivery (Spot vs Futures Markets)
Rate this question

Topics

Concept and Classification of Markets

More questions from this topic