Chicago Mercantile Exchange (CME)

Definition

The Chicago Mercantile Exchange (CME), now part of the CME Group, is a leading U.S. futures and options market where financial and commodity contracts are actively traded. Founded in 1919, the CME has evolved from a market focused on agricultural futures to one that facilitates trading in an array of financial instruments.

Examples

CME Live Cattle Futures:
- Contracts traded based on the market for live cattle, providing risk management to agricultural producers.
CME E-mini S&P 500 Futures:
- Allows traders to speculate on or hedge against the future movements of the S&P 500 index with a smaller contract size.
CME Eurodollar Futures:
- Financial instruments used to hedge against interest rate risks or to speculate on the future direction of short-term U.S. interest rates.

Frequently Asked Questions

What is the CME Group?

The CME Group is the entity that emerged from the merger of the Chicago Mercantile Exchange, the Chicago Board of Trade (CBOT), and the New York Mercantile Exchange (NYMEX), making it the world’s largest and most diverse derivatives marketplace.

What types of contracts are traded on the CME?

The CME offers trading in a wide range of financial and commodity futures and options contracts, including stocks, bonds, interest rates, foreign exchange, agricultural commodities, energy products, and metals.

What is the International Monetary Market (IMM)?

The International Monetary Market (IMM) is a division of the CME, launched in 1972, that introduced the world’s first financial futures contracts, paving the way for futures on foreign exchange, interest rates, and other financial instruments.

Futures Contract: An agreement to buy or sell an asset at a future date for a specified price.
Options Contract: A contract giving the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price before or at expiration.
Commodity Futures: Futures contracts for raw materials and primary agricultural products, traded on commodity exchanges like the CME.
Financial Futures: Futures contracts based on financial instruments such as interest rates, currency exchange rates, and stock indexes.

Online References

Suggested Books for Further Studies

Trading Commodities and Financial Futures by George Kleinman
Futures, Options, and Swaps by Robert W. Kolb
The CME Group Risk Management Handbook: Products and Applications by John W. Labuszewski
The New Commodity Trading Guide by George Kleinman
Options, Futures, and Other Derivatives by John C. Hull

Accounting Basics: “Chicago Mercantile Exchange (CME)” Fundamentals Quiz

### What year was the Chicago Mercantile Exchange established? - [x] 1919 - [ ] 1930 - [ ] 1972 - [ ] 2008 > **Explanation:** The Chicago Mercantile Exchange (CME) was established in 1919. ### What type of products are primarily traded on the CME? - [x] Futures and options - [ ] Stocks - [ ] Municipal Bonds - [ ] Digital Currencies > **Explanation:** The CME focuses on trading futures and options in a wide range of commodities and financial instruments. ### Which innovation did the CME introduce in 1972? - [ ] Commodity futures - [ ] Stock trading - [x] The International Monetary Market for financial futures - [ ] Cryptocurrency futures > **Explanation:** In 1972, the CME launched the International Monetary Market, the world's first market for financial futures. ### What significant acquisition did the CME Group make in 2007? - [ ] NASDAQ - [x] Chicago Board of Trade (CBOT) - [ ] Intercontinental Exchange (ICE) - [ ] London Stock Exchange (LSE) > **Explanation:** In 2007, the CME Group acquired the Chicago Board of Trade (CBOT). ### What significant acquisition did the CME Group make in 2008? - [ ] Chicago Board Options Exchange (CBOE) - [ ] New York Stock Exchange (NYSE) - [x] New York Mercantile Exchange (NYMEX) - [ ] Toronto Stock Exchange (TSX) > **Explanation:** In 2008, the CME Group acquired the New York Mercantile Exchange (NYMEX). ### What type of futures contract might agricultural producers trade on the CME? - [ ] Technology Futures - [ ] Eurodollar Futures - [x] Live Cattle Futures - [ ] Bitcoin Futures > **Explanation:** Agricultural producers might trade Live Cattle Futures on the CME to manage risks related to cattle prices. ### What primary function does the CME Group serve in the financial industry? - [ ] Stock issuance - [x] Derivatives trading - [ ] Retail banking - [ ] Asset management > **Explanation:** The CME Group serves as a derivatives trading platform, facilitating trade in futures and options. ### What is not a division of the CME Group? - [ ] CME - [x] NASDAQ - [ ] CBOT - [ ] NYMEX > **Explanation:** While the CME, CBOT, and NYMEX are parts of the CME Group, NASDAQ is a separate entity. ### Futures contracts on what index can be found on the CME E-mini line? - [ ] Dow Jones Industrial Average - [ ] NASDAQ-100 - [ ] Russell 2000 - [x] S&P 500 > **Explanation:** The CME E-mini line includes futures contracts on the S&P 500 index. ### Which entity initially merged to form the CME Group? - [ ] NYSE - [ ] ICE - [x] CBOT - [ ] LSE > **Explanation:** Initially, the Chicago Mercantile Exchange (CME) merged with the Chicago Board of Trade (CBOT) to form the CME Group.

Thank you for exploring the details of the Chicago Mercantile Exchange and testing your understanding with the CME Fundamentals Quiz. Keep striving for excellence in your financial knowledge!