Futures are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price. Futures contracts, or simply “futures,” are traded on futures exchanges like the CME Group and require a brokerage account that’s approved to trade futures.

A futures contract involves both a buyer and a seller, similar to an options contract. Unlike options, which can become worthless at expiration, when a futures contract expires, the buyer is obligated to buy and receive the underlying asset and the seller of the futures contract is obligated to provide and deliver the underlying asset.

Summary
Forwards and futures have become very important instruments in investments as they increase the alternative available to investors and allow investors to use different strategies to meet their investment objectives. in this topic, we have briefly looked at the mechanisms of futures contracts. Our focus is to discuss the types and uses of futures in Malaysia. As such, a large part of this topic has been dedicated to illustrating and describing the uses and applications of various futures contracts in Malaysia.

Self-Assessment / Activity
1. it is September. Given that the current spot price of crude palm oil is RM960, if the cost of carry is 9%, what is the futures price of the December crude palm oil futures?
A. RM980.90
B. RM998.36
C. RM1,026.30
D. RM1,046.40

2. A finance manager of a large corporation was informed that the firm would require to borrow some funds in 3 months’ time. Current interest rates are based on the 3-month KLIBOR rate of 8% per annum. As the finance manager expects interest rates to increase during this period, he decides to lock in the current interest rates by:
A. buying KLIBOR futures contracts
B. selling KLIBOR futures contracts
C. buying bond futures contract
D. buying and selling corresponding KLIBOR futures contracts

3. Which one of the following statements about futures contract is NOT accurate?
A. Equity futures are futures contacts based on shares which are traded on Bursa Malaysia Derivatives.
B. The FBM KLCI futures are based on shares listed on Bursa Malaysia and are traded on Bursa Malaysia Derivatives.
C. The crude palm oil futures traded on Bursa Malaysia Derivatives are the only crude palm oil futures in the world.
D. KLIBOR futures have a principal amount of RM2 million and are traded on Bursa Malaysia Derivatives.

4. A portfolio manager currently holds a portfolio worth RM20 million. The portfolio returns closely match the returns on the FBM KLCI. The portfolio manager expects the market to experience a downtrend in the short to medium term and decides to hedge against this expectation. The FBM KLCI futures is currently trading at 1300 points. The portfolio manager has to ________ to fully hedge his position.
A. buy 153 FBM KLCI futures contracts
B. sell 307 FBM KLCI futures contracts
C. buy 307 FBM KLCI futures contracts
D. sell 153 FBM KLCI futures contracts

Additional questions:
1. What is Futures?
A. are refer to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark. 
B. are refer to a financial instrument that is based on the value of underlying securities such as stocks, indexes, and exchange traded funds (ETFs).
C. are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price.
D. is a derivative contract through which two parties exchange the cash flows or liabilities from two different financial instruments

2. Which of the following type of derivatives has no inherent value and is determined by movements in the prize and underlying value of an asset?
A. Forwards
B. Futures
C. Options
D. All of the above