Question 1

Delivery of stock index futures

Accepted Answer

A)  is never made. 
B)  is made by a cash settlement based on the index value. 
C)  requires delivery of 1 share of each stock in the index. 
D)  is made by delivering 100 shares of each stock in the index. 
E)  is made by delivering a value-weighted basket of stocks. 
A)  is never made. 
B)  is made by a cash settlement based on the index value. 
C)  requires delivery of 1 share of each stock in the index. 
D)  is made by delivering 100 shares of each stock in the index. 
E)  is made by delivering a value-weighted basket of stocks.

Question 2

Which of the following statements regarding delivery is false?I) Most futures contracts result in actual delivery.II) Only 1% to 3% of futures contracts result in actual delivery.III) Only 15% of futures contracts result in actual delivery.

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  I and II 
E)  I and III 
A)  I only 
B)  II only 
C)  III only 
D)  I and II 
E)  I and III

Question 3

Which of the following is a hedge strategy?

Accepted Answer

A)  A farmer going short corn futures. 
B)  A cereal company purchasing corn in the spot market. 
C)  An auto manufacturer shorting steal futures. 
D)  A bank shorting index futures. 
A)  A farmer going short corn futures. 
B)  A cereal company purchasing corn in the spot market. 
C)  An auto manufacturer shorting steal futures. 
D)  A bank shorting index futures.

Question 4

To exploit an expected decrease in interest rates, an investor would most likely

Accepted Answer

A)  buy Treasury bond futures. 
B)  take a long position in wheat futures. 
C)  buy S&P 500 Index futures. 
D)  take a short position in Treasury bond futures. 
E)  None of the options are correct. 
A)  buy Treasury bond futures. 
B)  take a long position in wheat futures. 
C)  buy S&P 500 Index futures. 
D)  take a short position in Treasury bond futures. 
E)  None of the options are correct.

Question 5

Which of the following is true about profits from futures contracts?

Accepted Answer

A)  The person with the long position gets to decide whether to exercise the futures contract and will only do so if there is a profit to be made. 
B)  It is possible for both the holder of the long position and the holder of the short position to earn a profit. 
C)  The clearinghouse makes most of the profit. 
D)  The amount that the holder of the long position gains must equal the amount that the holder of the short position loses. 
E)  Holders of short positions can recognize profits by making delivery early. 
A)  The person with the long position gets to decide whether to exercise the futures contract and will only do so if there is a profit to be made. 
B)  It is possible for both the holder of the long position and the holder of the short position to earn a profit. 
C)  The clearinghouse makes most of the profit. 
D)  The amount that the holder of the long position gains must equal the amount that the holder of the short position loses. 
E)  Holders of short positions can recognize profits by making delivery early.

Question 6

You sold one oil future contract at $70 per barrel. What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

Accepted Answer

A)  $3.12 profit 
B)  $31.20 profit 
C)  $3.12 loss 
D)  $31.20 loss 
E)  None of the options are correct. 
A)  $3.12 profit 
B)  $31.20 profit 
C)  $3.12 loss 
D)  $31.20 loss 
E)  None of the options are correct.

Question 7

You bought one soybean future contract at $5.13 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $5.26 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

A)  $65 profit 
B)  $650 profit 
C)  $650 loss 
D)  $65 loss 
A)  $65 profit 
B)  $650 profit 
C)  $650 loss 
D)  $65 loss

Question 8

An investor with a long position in Treasury notes futures will profit if

Accepted Answer

A)  interest rates decline. 
B)  interest rates increase. 
C)  the prices of Treasury notes decrease. 
D)  the price of the S&P 500 Index increases. 
E)  None of the options are correct. 
A)  interest rates decline. 
B)  interest rates increase. 
C)  the prices of Treasury notes decrease. 
D)  the price of the S&P 500 Index increases. 
E)  None of the options are correct.

Question 9

Agricultural futures contracts are actively traded on

Accepted Answer

A)  corn. 
B)  oats. 
C)  pork bellies. 
D)  corn and oats. 
E)  All of the options are correct. 
A)  corn. 
B)  oats. 
C)  pork bellies. 
D)  corn and oats. 
E)  All of the options are correct.

Question 10

An investor with a short position in Treasury notes futures will profit if

Accepted Answer

A)  interest rates decline. 
B)  interest rates increase. 
C)  the prices of Treasury notes increase. 
D)  the price of the long bond increases. 
E)  None of the options are correct. 
A)  interest rates decline. 
B)  interest rates increase. 
C)  the prices of Treasury notes increase. 
D)  the price of the long bond increases. 
E)  None of the options are correct.

Question 11

Open interest includes

Accepted Answer

A)  only contracts with a specified delivery date. 
B)  the sum of short and long positions. 
C)  the sum of short, long, and clearinghouse positions. 
D)  the sum of long or short positions and clearinghouse positions. 
E)  only long or short positions but not both. 
A)  only contracts with a specified delivery date. 
B)  the sum of short and long positions. 
C)  the sum of short, long, and clearinghouse positions. 
D)  the sum of long or short positions and clearinghouse positions. 
E)  only long or short positions but not both.

Question 12

On January 1, you bought one April S&P 500 index futures contract at a futures price of 3,420. If, on February 1, the April futures price was 3,430, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Accepted Answer

A)  $2,500 loss 
B)  $10 loss 
C)  $2,500 profit 
D)  $10 profit 
A)  $2,500 loss 
B)  $10 loss 
C)  $2,500 profit 
D)  $10 profit

Question 13

On April 1, you sold one S&P 500 Index futures contract at a futures price of 1,550. If, on June 15, the futures price was 1,612, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Accepted Answer

A)  $1,550 loss 
B)  $15,550 loss 
C)  $15,550 profit 
D)  $1,550 profit 
A)  $1,550 loss 
B)  $15,550 loss 
C)  $15,550 profit 
D)  $1,550 profit

Question 14

Futures contracts are regulated by

Accepted Answer

A)  the Commodities Futures Trading Corporation. 
B)  the Chicago Board of Trade. 
C)  the Chicago Mercantile Exchange. 
D)  the Federal Reserve. 
E)  the Securities and Exchange Commission. 
A)  the Commodities Futures Trading Corporation. 
B)  the Chicago Board of Trade. 
C)  the Chicago Mercantile Exchange. 
D)  the Federal Reserve. 
E)  the Securities and Exchange Commission.

Question 15

If you determine that the DAX-30 Index futures is overpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

Accepted Answer

A)  buying all the stocks in the DAX-30 and selling put options on the DAX-30 Index. 
B)  selling short all the stocks in the DAX-30 and buying DAX-30 futures. 
C)  selling all the stocks in the DAX-30 and buying call options on the DAX-30 Index. 
D)  selling DAX-30 Index futures and buying all the stocks in the DAX-30. 
A)  buying all the stocks in the DAX-30 and selling put options on the DAX-30 Index. 
B)  selling short all the stocks in the DAX-30 and buying DAX-30 futures. 
C)  selling all the stocks in the DAX-30 and buying call options on the DAX-30 Index. 
D)  selling DAX-30 Index futures and buying all the stocks in the DAX-30.

Question 16

Which one of the following statements is true?

Accepted Answer

A)  The maintenance margin is the amount of money you post with your broker when you buy or sell a futures contract. 
B)  If the value of the margin account falls below the maintenance-margin requirement, the holder of the contract will receive a margin call. 
C)  A margin deposit can only be met with cash. 
D)  All futures contracts require the same margin deposit. 
E)  The maintenance margin is set by the producer of the underlying asset. 
A)  The maintenance margin is the amount of money you post with your broker when you buy or sell a futures contract. 
B)  If the value of the margin account falls below the maintenance-margin requirement, the holder of the contract will receive a margin call. 
C)  A margin deposit can only be met with cash. 
D)  All futures contracts require the same margin deposit. 
E)  The maintenance margin is set by the producer of the underlying asset.

Question 17

Financial futures contracts are actively traded on the following indices except

Accepted Answer

A)  the All ordinary index. 
B)  the DAX 30 Index. 
C)  the CAC 40 Index. 
D)  the Toronto 35 Index. 
E)  All of the options are correct. 
A)  the All ordinary index. 
B)  the DAX 30 Index. 
C)  the CAC 40 Index. 
D)  the Toronto 35 Index. 
E)  All of the options are correct.

Question 18

On January 1, you sold one April S&P 500 Index futures contract at a futures price of 3,420. If, on February 1, the April futures price was 3,430, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Accepted Answer

A)  $2,500 loss 
B)  $10 loss 
C)  $2,500 profit 
D)  $10 profit 
A)  $2,500 loss 
B)  $10 loss 
C)  $2,500 profit 
D)  $10 profit

Question 19

Speculators may use futures markets rather than spot markets because

Accepted Answer

A)  transaction costs are lower in futures markets. 
B)  futures markets provide leverage. 
C)  spot markets are less efficient. 
D)  futures markets are less efficient. 
E)  transaction costs are lower in futures markets, and futures markets provide leverage. 
A)  transaction costs are lower in futures markets. 
B)  futures markets provide leverage. 
C)  spot markets are less efficient. 
D)  futures markets are less efficient. 
E)  transaction costs are lower in futures markets, and futures markets provide leverage.

Question 20

Financial futures contracts are actively traded on which of the following indices?

Accepted Answer

A)  The All ordinary index 
B)  The DAX 30 Index 
C)  The CAC 40 Index 
D)  The Toronto 35 Index 
E)  All of the options are correct. 
A)  The All ordinary index 
B)  The DAX 30 Index 
C)  The CAC 40 Index 
D)  The Toronto 35 Index 
E)  All of the options are correct.

Exam 22: Futures Markets

Delivery of stock index futures

Which of the following statements regarding delivery is false?I) Most futures contracts result in actual delivery.II) Only 1% to 3% of futures contracts result in actual delivery.III) Only 15% of futures contracts result in actual delivery.

Which of the following is a hedge strategy?

To exploit an expected decrease in interest rates, an investor would most likely

Which of the following is true about profits from futures contracts?

You sold one oil future contract at $70 per barrel. What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

You bought one soybean future contract at $5.13 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $5.26 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

An investor with a long position in Treasury notes futures will profit if

Agricultural futures contracts are actively traded on

An investor with a short position in Treasury notes futures will profit if

Open interest includes

On January 1, you bought one April S&P 500 index futures contract at a futures price of 3,420. If, on February 1, the April futures price was 3,430, what would be your profit (loss) if you closed your position (without considering transactions costs)?

On April 1, you sold one S&P 500 Index futures contract at a futures price of 1,550. If, on June 15, the futures price was 1,612, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Futures contracts are regulated by

If you determine that the DAX-30 Index futures is overpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

Which one of the following statements is true?

Financial futures contracts are actively traded on the following indices except

On January 1, you sold one April S&P 500 Index futures contract at a futures price of 3,420. If, on February 1, the April futures price was 3,430, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Speculators may use futures markets rather than spot markets because

Financial futures contracts are actively traded on which of the following indices?

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, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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