Question 1

If you purchased one S&P 500 Index futures contract at a price of 3,550 and closed your position when the index futures was 3,547, you incurred

Accepted Answer

A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of the options are correct. 
A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of the options are correct.

Question 2

Commodity futures pricing

Accepted Answer

A)  must be related to spot prices. 
B)  includes cost of carry. 
C)  converges to spot prices at maturity. 
D)  All of the options are correct. 
E)  None of the options. 
A)  must be related to spot prices. 
B)  includes cost of carry. 
C)  converges to spot prices at maturity. 
D)  All of the options are correct. 
E)  None of the options.

Question 3

Hedging one commodity by using a futures contract on another commodity is called

Accepted Answer

A)  surrogate hedging. 
B)  cross hedging. 
C)  alternative hedging. 
D)  correlative hedging. 
E)  proxy hedging. 
A)  surrogate hedging. 
B)  cross hedging. 
C)  alternative hedging. 
D)  correlative hedging. 
E)  proxy hedging.

Question 4

If interest rate parity holds,

Accepted Answer

A)  covered interest arbitrage opportunities will exist. 
B)  covered interest arbitrage opportunities will not exist. 
C)  arbitragers will be able to make risk-free profits. 
D)  covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits. 
E)  covered interest arbitrage opportunities will not exist, and arbitragers will be able to make risk-free profits. 
A)  covered interest arbitrage opportunities will exist. 
B)  covered interest arbitrage opportunities will not exist. 
C)  arbitragers will be able to make risk-free profits. 
D)  covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits. 
E)  covered interest arbitrage opportunities will not exist, and arbitragers will be able to make risk-free profits.

Question 5

A hedge ratio can be computed as

Accepted Answer

A)  profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate. 
B)  the change in value of the unprotected position for a given change in the exchange rate divided by the profit derived from one futures position for the same exchange rate. 
C)  profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate. 
D)  the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate. 
A)  profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate. 
B)  the change in value of the unprotected position for a given change in the exchange rate divided by the profit derived from one futures position for the same exchange rate. 
C)  profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate. 
D)  the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate.

Question 6

If covered interest arbitrage opportunities do not exist,

Accepted Answer

A)  interest rate parity does not hold. 
B)  interest rate parity holds. 
C)  arbitragers will be able to make risk-free profits. 
D)  interest rate parity does not hold, and arbitragers will be able to make risk-free profits. 
E)  interest rate parity holds, and arbitragers will be able to make risk-free profits. 
A)  interest rate parity does not hold. 
B)  interest rate parity holds. 
C)  arbitragers will be able to make risk-free profits. 
D)  interest rate parity does not hold, and arbitragers will be able to make risk-free profits. 
E)  interest rate parity holds, and arbitragers will be able to make risk-free profits.

Question 7

If you sold an S&P 500 Index futures contract at a price of 2950 and closed your position when the index futures was 2947, you incurred

Accepted Answer

A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of the options are correct. 
A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of the options are correct.

Question 8

Which one of the following stock index futures has a multiplier of 25 euros times the index?

Accepted Answer

A)  FTSE 100 
B)  Hang Seng 
C)  Nikkei 
D)  DAX-30 
E)  FTSE 100 and Hang Seng 
A)  FTSE 100 
B)  Hang Seng 
C)  Nikkei 
D)  DAX-30 
E)  FTSE 100 and Hang Seng

Question 9

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $\begin{array}{lc}
  \text {  Portfolio Value} &\$ \quad \text { 1million } \
 \text {  Portfolio's Beta} &0.60\
 \text { Current S\&P500 value } &1400\
 \text {Anticipated S\&P500 Value  } &1200\
\end{array}$
 If the anticipated market value materializes, what will be your expected loss on the portfolio?

Accepted Answer

A)  14.29% 
B)  16.67% 
C)  15.43% 
D)  8.57% 
E)  6.42% 
A)  14.29% 
B)  16.67% 
C)  15.43% 
D)  8.57% 
E)  6.42%

Question 10

Arbitrage proofs in futures market pricing relationships

Accepted Answer

A)  rely on the CAPM. 
B)  demonstrate how investors can exploit misalignments. 
C)  incorporate transactions costs. 
D)  All of the options are correct. 
E)  None of the options are correct. 
A)  rely on the CAPM. 
B)  demonstrate how investors can exploit misalignments. 
C)  incorporate transactions costs. 
D)  All of the options are correct. 
E)  None of the options are correct.

Question 11

If interest rate parity does not hold,

Accepted Answer

A)  covered interest arbitrage opportunities will exist. 
B)  covered interest arbitrage opportunities will not exist. 
C)  arbitragers will be able to make risk-free profits. 
D)  covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits. 
E)  covered interest arbitrage opportunities will not exist, and arbitragers will be able to make risk-free profits. 
A)  covered interest arbitrage opportunities will exist. 
B)  covered interest arbitrage opportunities will not exist. 
C)  arbitragers will be able to make risk-free profits. 
D)  covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits. 
E)  covered interest arbitrage opportunities will not exist, and arbitragers will be able to make risk-free profits.

Question 12

The value of a futures contract for storable commodities can be determined by the _______, and the model __________ consistent with parity relationships.

Accepted Answer

A)  CAPM; will be 
B)  CAPM; will not be 
C)  APT; will not be 
D)  APT; will be 
E)  CAPM and APT; will be 
A)  CAPM; will be 
B)  CAPM; will not be 
C)  APT; will not be 
D)  APT; will be 
E)  CAPM and APT; will be

Question 13

The most common short-term interest rate used in the swap market is

Accepted Answer

A)  the U.S. discount rate. 
B)  the U.S. prime rate. 
C)  the U.S. fed funds rate. 
D)  LIBOR. 
E)  None of the options are correct. 
A)  the U.S. discount rate. 
B)  the U.S. prime rate. 
C)  the U.S. fed funds rate. 
D)  LIBOR. 
E)  None of the options are correct.

Question 14

Which one of the following stock index futures has a multiplier of $50 times the index value?

Accepted Answer

A)  Mini-Russell 2000 
B)  FTSE 100 
C)  S&P Mid-Cap 
D)  DAX-30 
E)  Russell 2000 and S&P Mid-Cap 
A)  Mini-Russell 2000 
B)  FTSE 100 
C)  S&P Mid-Cap 
D)  DAX-30 
E)  Russell 2000 and S&P Mid-Cap

Question 15

If you took a short position in two S&P 500 futures contracts at a price of 3,510 and closed the position when the index futures was 3,492, you incurred

Accepted Answer

A)  a gain of $9,000. 
B)  a loss of $9,000. 
C)  a loss of $18,000. 
D)  a gain of $18,000. 
E)  None of the options are correct. 
A)  a gain of $9,000. 
B)  a loss of $9,000. 
C)  a loss of $18,000. 
D)  a gain of $18,000. 
E)  None of the options are correct.

Question 16

Suppose that the risk-free rates in the United States and in Canada are 3% and 5%, respectively. The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/C$. What should the futures price of the C$ for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.

Accepted Answer

A)  $1.00/C$ 
B)  $1.70/C$ 
C)  $0.88/C$ 
D)  $0.78/C$ 
E)  $1.22/C$ 
A)  $1.00/C$ 
B)  $1.70/C$ 
C)  $0.88/C$ 
D)  $0.78/C$ 
E)  $1.22/C$

Question 17

Which one of the following stock index futures has a multiplier of $100 times the index value?

Accepted Answer

A)  Russell 2000 
B)  FTSE 100 
C)  Nikkei 
D)  NASDAQ 100 
E)  Mini-Russell 2000 and NASDAQ 100 
A)  Russell 2000 
B)  FTSE 100 
C)  Nikkei 
D)  NASDAQ 100 
E)  Mini-Russell 2000 and NASDAQ 100

Question 18

One reason swaps are desirable is that

Accepted Answer

A)  they are free of credit risk. 
B)  they have no transactions costs. 
C)  they increase interest rate volatility. 
D)  they increase interest rate risk. 
E)  they offer participants easy ways to restructure their balance sheets. 
A)  they are free of credit risk. 
B)  they have no transactions costs. 
C)  they increase interest rate volatility. 
D)  they increase interest rate risk. 
E)  they offer participants easy ways to restructure their balance sheets.

Question 19

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $\begin{array}{lc}
  \text {  Portfolio Value} &\$ \quad \text { 1million } \
 \text {  Portfolio's Beta} &0.86\
 \text { Current S\&P500 value } &990\
 \text {Anticipated S\&P500 Value  } &915\
\end{array}$

For a 75-point drop in the S&P 500, by how much does the futures position change?

Accepted Answer

A)  $200,000 
B)  $50,000 
C)  $250,000 
D)  $500,000 
E)  $18,750 
A)  $200,000 
B)  $50,000 
C)  $250,000 
D)  $500,000 
E)  $18,750

Question 20

What is the dollar value of a S&P E-mini futures contract with a listed price of 3145?

Accepted Answer

A)  $3,145 
B)  $157,250 
C)  $1,572,500 
D)  $31,450 
A)  $3,145 
B)  $157,250 
C)  $1,572,500 
D)  $31,450

Exam 23: Futures, Swaps, and Risk Management

If you purchased one S&P 500 Index futures contract at a price of 3,550 and closed your position when the index futures was 3,547, you incurred

Commodity futures pricing

Hedging one commodity by using a futures contract on another commodity is called

If interest rate parity holds,

A hedge ratio can be computed as

If covered interest arbitrage opportunities do not exist,

If you sold an S&P 500 Index futures contract at a price of 2950 and closed your position when the index futures was 2947, you incurred

Which one of the following stock index futures has a multiplier of 25 euros times the index?

Arbitrage proofs in futures market pricing relationships

If interest rate parity does not hold,

The value of a futures contract for storable commodities can be determined by the _______, and the model __________ consistent with parity relationships.

The most common short-term interest rate used in the swap market is

Which one of the following stock index futures has a multiplier of $50 times the index value?

If you took a short position in two S&P 500 futures contracts at a price of 3,510 and closed the position when the index futures was 3,492, you incurred

Which one of the following stock index futures has a multiplier of $100 times the index value?

One reason swaps are desirable is that

What is the dollar value of a S&P E-mini futures contract with a listed price of 3145?

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

The value of a futures contract for storable commodities can be determined by the _, and the model ____ consistent with parity relationships.