Question 1

An agreement between a buyer and seller to commit a transaction in a future date at a price negotiated today is a(n)  _________ contract.

Accepted Answer

A)   Open
B)   Forward
C)   Long
D)   Option
E)   ExchangeF) C) and E)
G) B) and C)

Question 2

A stock is currently selling for $104.12, and has a continuous dividend yield of 1.8 percent. What is the price of a futures contract on the stock that expires in five months if the risk-free rate of interest is 4.5 percent?

Accepted Answer

A)   $105.28
B)   $102.94
C)   $106.05
D)   $105.73
E)   $106.32F) B) and C)
G) C) and D) A

Question 3

A futures contract _________ a zero sum game. A forward contract __________ a zero sum game.

Accepted Answer

A)   is; is
B)   is; is not
C)   is not; is not
D)   is not; is
E)   Cannot be determined from the information given.F) A) and E)
G) None of the above

Question 4

What are the differences between a futures contract and a forward contract?
 Would you ever want to use a forward contract rather than a futures contract?

Accepted Answer

Forward contracts are designed by the tw...

Question 5

What is the difference between hedging and speculating? Who are the hedgers? Who are the speculators?

Accepted Answer

Hedging is done when the party already owns the asset or will own the asset, such as a farmer hedging his crop when he plants the crop. The hedger is attempting to reduce risk. The speculator is taking risk in an attempt to earn a high return. The purpose of a futures exchange is to match individuals (or companies) who want to avoid risk with individuals (or companies) willing to take on the risk for a chance at a potentially high return.

Question 6

Assume that you own an inventory of a commodity. Explain how and why you would hedge this inventory.

Accepted Answer

You would hedge the inventory to avoid the risk of financial loss when the price of the commodity declines. You would create the hedge by taking a short position in the commodity or in a similar commodity.

Question 7

An interest-rate futures contract calls for the delivery of:

Accepted Answer

A)   A cash payment
B)   Gold
C)   Either gold, silver or platinum
D)   A fixed-income securities
E)   Interest-sensitive stockF) A) and E)
G) B) and E)

Question 8

A portfolio manager wishes to hedge a bond portfolio with a value of $750 million and duration of 12.1 years. A 10-year Canada bond futures contract that expires in seven months is quoted at 105.85, and has a $100,000 face value. If the duration of the futures contract is 7.75 years, how many contracts are needed for the hedge?

Accepted Answer

A)   11,063
B)   11,241
C)   10,732
D)   10,467
E)   10,288F) D) and E)
G) A) and B)

Question 9

Which one of the following is a trade that will close out a previously established futures position?

Accepted Answer

A)   maintenance call
B)   margin call
C)   reverse trade
D)   position reversal
E)   margin closeoutF) A) and B)
G) B) and C)

Question 10

All else the same, as the price of a S&P 500 futures used to hedge an equity portfolio increases, the number of contracts needed to hedge the portfolio will:

Accepted Answer

A)   increase.
B)   decrease.
C)   not change.
D)   increase if the beta of the portfolio is greater than one.
E)   decrease if the beta of the portfolio is greater than one.F) A) and D)
G) B) and E)

Question 11

A(n)  _________ market occurs when a positive basis is observed.

Accepted Answer

A)   Parity
B)   Inverted
C)   Basis
D)   Arbitrage
E)   Carrying-chargeF) C) and D)
G) All of the above

Question 12

Which of the following futures contracts is settled differently than the rest?

Accepted Answer

A)   Corn futures.
B)   Soybean futures.
C)   Single stock futures.
D)   S&P Canada 60 index futures.
E)   Gold futures.F) D) and E)
G) B) and E)

Question 13

When does the holder of a short position realize a profit?

Accepted Answer

A)   when prices rise
B)   when prices either remain constant or rise
C)   when prices remain constant
D)   when prices either remain constant or decline
E)   when prices declineF) A) and B)
G) A) and C)

Question 14

A trader who wants to transfer price risk by taking a futures position to the existing position in a commodity is a _________.

Accepted Answer

A)   Dealer
B)   Speculator
C)   market maker
D)   Hedger
E)   SpecialistF) A) and B)
G) A) and C)

Question 15

In Canada, who is responsible for standardizing a financial futures contract?

Accepted Answer

A)   Winnipeg Commodity Exchange.
B)   Toronto Stock Exchange.
C)   Vancouver Exchange.
D)   Montreal Exchange.
E)   All of the above.F) A) and B)
G) A) and E)

Question 16

S&P 400 Midcap (CME)  - $500 * Index

Lifetime  Open  Open  High  Low  Settle  Chg  High  Low  Int  Mar 502.25506.30497.25505.75+2.50532.50474.151,432 Apr 501.25508.75496.75504.30−1.25540.35478.30867\begin{array}{lcccccccc} & & & & & &{	ext { Lifetime }} && 	ext { Open } \& 	ext { Open } & 	ext { High } & 	ext { Low } & 	ext { Settle } & 	ext { Chg } & 	ext { High } & 	ext { Low } & 	ext { Int } \	ext { Mar } & 502.25 & 506.30 & 497.25 & 505.75 & +2.50 & 532.50 & 474.15 & 1,432 \	ext { Apr } & 501.25 & 508.75 & 496.75 & 504.30 & -1.25 & 540.35 & 478.30 & 867\end{array} Mar  Apr ​ Open 502.25501.25​ High 506.30508.75​ Low 497.25496.75​ Settle 505.75504.30​ Chg +2.50−1.25​ Lifetime  High 532.50540.35​ Low 474.15478.30​ Open  Int 1,432867​ 
-You purchased eight March S&P Midcap futures at a price of 482.15 and sold them at the low price of the day. What was your dollar return?

Accepted Answer

A)   $60,400
B)   $59,860
C)   $62,560
D)   $61,440
E)   $61,840 F) A) and E)
G) B) and E)

Question 17

The futures is less than the cash price in a(n)  _________ market.

Accepted Answer

A)   parity
B)   inverted
C)   basis
D)   arbitrage
E)   carrying-chargeF) D) and E)
G) None of the above

Question 18

Which one of the following is another name for the cash market?

Accepted Answer

A)   futures market
B)   forward market
C)   arbitrage market
D)   current basis market
E)   spot marketF) A) and B)
G) A) and C)

Question 19

You have decided to close out your futures position. To do this, you need to instruct your broker to:

Accepted Answer

A)   Place a sell order.
B)   Enter a reserve trade
C)   Close your margin account
D)   Mark your account
E)   Spot your accountF) B) and D)
G) A) and E)

Question 20

Using computers to monitor prices and also to submit trading orders in response to arbitrage opportunities is known as ________ trading.

Accepted Answer

A)   Cross
B)   Index
C)   Internet
D)   Program
E)   DealerF) A) and C)
G) None of the above

Exam 16: Futures Contracts

An agreement between a buyer and seller to commit a transaction in a future date at a price negotiated today is a(n) _________ contract.

Correct Answer
verified

A stock is currently selling for $104.12, and has a continuous dividend yield of 1.8 percent. What is the price of a futures contract on the stock that expires in five months if the risk-free rate of interest is 4.5 percent?

Correct Answer
verified
A

A futures contract _ a zero sum game. A forward contract __ a zero sum game.

Correct Answer
verified

What are the differences between a futures contract and a forward contract? Would you ever want to use a forward contract rather than a futures contract?

Correct Answer
verified
Forward contracts are designed by the tw...
View Answer

What is the difference between hedging and speculating? Who are the hedgers? Who are the speculators?

Assume that you own an inventory of a commodity. Explain how and why you would hedge this inventory.

Correct Answer
verified
You would hedge the inventory to avoid the risk of financial loss when the price of the commodity declines. You would create the hedge by taking a short position in the commodity or in a similar commodity.

An interest-rate futures contract calls for the delivery of:

Correct Answer
verified

Correct Answer
verified

Which one of the following is a trade that will close out a previously established futures position?

Correct Answer
verified

All else the same, as the price of a S&P 500 futures used to hedge an equity portfolio increases, the number of contracts needed to hedge the portfolio will:

Correct Answer
verified

A(n) _________ market occurs when a positive basis is observed.

Correct Answer
verified

Which of the following futures contracts is settled differently than the rest?

Correct Answer
verified

When does the holder of a short position realize a profit?

Correct Answer
verified

A trader who wants to transfer price risk by taking a futures position to the existing position in a commodity is a _________.

Correct Answer
verified

In Canada, who is responsible for standardizing a financial futures contract?

Correct Answer
verified

Correct Answer
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The futures is less than the cash price in a(n) _________ market.

Correct Answer
verified

Which one of the following is another name for the cash market?

Correct Answer
verified

You have decided to close out your futures position. To do this, you need to instruct your broker to:

Correct Answer
verified

Using computers to monitor prices and also to submit trading orders in response to arbitrage opportunities is known as ________ trading.

Correct Answer
verified

Exam 16: Futures Contracts

An agreement between a buyer and seller to commit a transaction in a future date at a price negotiated today is a(n) _________ contract.

Correct AnswerverifiedShow Answer

A stock is currently selling for $104.12, and has a continuous dividend yield of 1.8 percent. What is the price of a futures contract on the stock that expires in five months if the risk-free rate of interest is 4.5 percent?

Correct AnswerverifiedA

A futures contract _________ a zero sum game. A forward contract __________ a zero sum game.

Correct AnswerverifiedShow Answer

What are the differences between a futures contract and a forward contract? Would you ever want to use a forward contract rather than a futures contract?

Correct AnswerverifiedForward contracts are designed by the tw...View AnswerShow Answer

What is the difference between hedging and speculating? Who are the hedgers? Who are the speculators?

Assume that you own an inventory of a commodity. Explain how and why you would hedge this inventory.

Correct AnswerverifiedYou would hedge the inventory to avoid the risk of financial loss when the price of the commodity declines. You would create the hedge by taking a short position in the commodity or in a similar commodity.

An interest-rate futures contract calls for the delivery of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following is a trade that will close out a previously established futures position?

Correct AnswerverifiedShow Answer

All else the same, as the price of a S&P 500 futures used to hedge an equity portfolio increases, the number of contracts needed to hedge the portfolio will:

Correct AnswerverifiedShow Answer

A(n) _________ market occurs when a positive basis is observed.

Correct AnswerverifiedShow Answer

Which of the following futures contracts is settled differently than the rest?

Correct AnswerverifiedShow Answer

When does the holder of a short position realize a profit?

Correct AnswerverifiedShow Answer

A trader who wants to transfer price risk by taking a futures position to the existing position in a commodity is a _________.

Correct AnswerverifiedShow Answer

In Canada, who is responsible for standardizing a financial futures contract?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The futures is less than the cash price in a(n) _________ market.

Correct AnswerverifiedShow Answer

Which one of the following is another name for the cash market?

Correct AnswerverifiedShow Answer

You have decided to close out your futures position. To do this, you need to instruct your broker to:

Correct AnswerverifiedShow Answer

Using computers to monitor prices and also to submit trading orders in response to arbitrage opportunities is known as ________ trading.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
A

A futures contract _ a zero sum game. A forward contract __ a zero sum game.

Correct Answer
verified

Correct Answer
verified
Forward contracts are designed by the tw...
View Answer

Correct Answer
verified
You would hedge the inventory to avoid the risk of financial loss when the price of the commodity declines. You would create the hedge by taking a short position in the commodity or in a similar commodity.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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