Question 1

You hold one long oil futures contract that expires in April. To close your position in oil futures before the delivery date, you must

Accepted Answer

A)  buy one May oil futures contract. 
B)  buy two April oil futures contracts. 
C)  sell one April oil futures contract. 
D)  sell one May oil futures contract. 
E)  None of the options are correct. 
A)  buy one May oil futures contract. 
B)  buy two April oil futures contracts. 
C)  sell one April oil futures contract. 
D)  sell one May oil futures contract. 
E)  None of the options are correct.

Question 2

Which one of the following statements regarding "basis" is true?

Accepted Answer

A)  The basis is the difference between the futures price and the spot price. 
B)  The basis risk is borne by the hedger. 
C)  A short hedger suffers losses when the basis decreases. 
D)  The basis increases when the futures price increases by more than the spot price. 
E)  The basis is the difference between the futures price and the spot price, basis risk is borne by the hedger, and basis increases when the futures price increases by more than the spot price. 
A)  The basis is the difference between the futures price and the spot price. 
B)  The basis risk is borne by the hedger. 
C)  A short hedger suffers losses when the basis decreases. 
D)  The basis increases when the futures price increases by more than the spot price. 
E)  The basis is the difference between the futures price and the spot price, basis risk is borne by the hedger, and basis increases when the futures price increases by more than the spot price.

Question 3

The expectations hypothesis of futures pricing

Accepted Answer

A)  is the simplest theory of futures pricing. 
B)  states that the futures price equals the expected value of the future spot price of the asset. 
C)  is not a zero-sum game. 
D)  is the simplest theory of futures pricing and states that the futures price equals the expected value of the future spot price of the asset. 
E)  is the simplest theory of futures pricing and is not a zero-sum game. 
A)  is the simplest theory of futures pricing. 
B)  states that the futures price equals the expected value of the future spot price of the asset. 
C)  is not a zero-sum game. 
D)  is the simplest theory of futures pricing and states that the futures price equals the expected value of the future spot price of the asset. 
E)  is the simplest theory of futures pricing and is not a zero-sum game.

Question 4

Which one of the following statements regarding "basis" is true?I) The basis is the difference between the futures price and the spot price.II) The basis risk is borne by the hedger.III) A short hedger suffers losses when the basis decreases.IV) The basis increases when the futures price increases by more than the spot price.

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  IV only 
E)  I, II, and IV. 
A)  I only 
B)  II only 
C)  III only 
D)  IV only 
E)  I, II, and IV.

Question 5

The terms of futures contracts, such as the quality and quantity of the commodity and the delivery date, are

Accepted Answer

A)  specified by the buyers and sellers. 
B)  specified only by the buyers. 
C)  specified by the futures exchanges. 
D)  specified by brokers and dealers. 
E)  None of the options are correct. 
A)  specified by the buyers and sellers. 
B)  specified only by the buyers. 
C)  specified by the futures exchanges. 
D)  specified by brokers and dealers. 
E)  None of the options are correct.

Question 6

Foreign currency futures contracts are actively traded on the

Accepted Answer

A)  euro. 
B)  British pound. 
C)  drachma. 
D)  euro and British pound. 
E)  All of the options are correct. 
A)  euro. 
B)  British pound. 
C)  drachma. 
D)  euro and British pound. 
E)  All of the options are correct.

Question 7

Foreign currency futures contracts are actively traded on the

Accepted Answer

A)  Japanese yen. 
B)  Australian dollar. 
C)  Brazilian real. 
D)  Japanese yen and Australian dollar. 
E)  All of the options are correct. 
A)  Japanese yen. 
B)  Australian dollar. 
C)  Brazilian real. 
D)  Japanese yen and Australian dollar. 
E)  All of the options are correct.

Question 8

You purchased one wheat future contract at $5.04 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $4.98 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

A)  $30 profit 
B)  $300 profit 
C)  $300 loss 
D)  $30 loss 
A)  $30 profit 
B)  $300 profit 
C)  $300 loss 
D)  $30 loss

Question 9

If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P 500 Index, you could make an arbitrage profit by

Accepted Answer

A)  buying all the stocks in the S&P 500 and selling put options on the S&P 500 Index. 
B)  selling short all the stocks in the S&P 500 and buying S&P Index futures. 
C)  selling all the stocks in the S&P 500 and buying call options on the S&P 500 Index. 
D)  selling S&P 500 Index futures and buying all the stocks in the S&P 500. 
E)  None of the options are correct. 
A)  buying all the stocks in the S&P 500 and selling put options on the S&P 500 Index. 
B)  selling short all the stocks in the S&P 500 and buying S&P Index futures. 
C)  selling all the stocks in the S&P 500 and buying call options on the S&P 500 Index. 
D)  selling S&P 500 Index futures and buying all the stocks in the S&P 500. 
E)  None of the options are correct.

Question 10

A trader who has a __________ position in oil futures believes the price of oil will __________ in the future.

Accepted Answer

A)  short; increase 
B)  long; increase 
C)  short; stay the same 
D)  long; stay the same 
A)  short; increase 
B)  long; increase 
C)  short; stay the same 
D)  long; stay the same

Question 11

Metals and energy currency futures contracts are actively traded on

Accepted Answer

A)  gold. 
B)  silver. 
C)  propane. 
D)  gold and silver. 
E)  All of the options are correct. 
A)  gold. 
B)  silver. 
C)  propane. 
D)  gold and silver. 
E)  All of the options are correct.

Question 12

Some of the newer futures contracts includeI) fashion futures.II) weather futures.III) electricity futures.IV) entertainment futures.

Accepted Answer

A)  I and II 
B)  II and III 
C)  III and IV 
D)  I, II, and III 
E)  I, III, and IV 
A)  I and II 
B)  II and III 
C)  III and IV 
D)  I, II, and III 
E)  I, III, and IV

Question 13

You purchased 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 14

The establishment of a futures market in a commodity should not have a major impact on spot prices because

Accepted Answer

A)  the futures market is small relative to the spot market. 
B)  the futures market is illiquid. 
C)  futures are a zero-sum game. 
D)  the futures market is large relative to the spot market. 
E)  most futures contracts do not take delivery. 
A)  the futures market is small relative to the spot market. 
B)  the futures market is illiquid. 
C)  futures are a zero-sum game. 
D)  the futures market is large relative to the spot market. 
E)  most futures contracts do not take delivery.

Question 15

Futures contracts __________ traded on an organized exchange, and forward contracts __________ traded on an organized exchange.

Accepted Answer

A)  are not; are 
B)  are; are 
C)  are not; are not 
D)  are; are not 
E)  are; may or may not be 
A)  are not; are 
B)  are; are 
C)  are not; are not 
D)  are; are not 
E)  are; may or may not be

Question 16

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

Accepted Answer

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

Question 17

Who guarantees that a futures contract will be fulfilled?

Accepted Answer

A)  The buyer 
B)  The seller 
C)  The broker 
D)  The clearinghouse 
E)  Nobody 
A)  The buyer 
B)  The seller 
C)  The broker 
D)  The clearinghouse 
E)  Nobody

Question 18

The open interest on silver futures at a particular time is the

Accepted Answer

A)  number of silver futures contracts traded during the day. 
B)  number of outstanding silver futures contracts for delivery within the next month. 
C)  number of silver futures contracts traded the previous day. 
D)  number of all long or short silver futures contracts outstanding. 
A)  number of silver futures contracts traded during the day. 
B)  number of outstanding silver futures contracts for delivery within the next month. 
C)  number of silver futures contracts traded the previous day. 
D)  number of all long or short silver futures contracts outstanding.

Question 19

You sold one silver future contract at $2 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $3.50 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

A)  $5,500 profit 
B)  $7,500 profit 
C)  $7,500 loss 
D)  $5,500 loss 
E)  None of the options are correct. 
A)  $5,500 profit 
B)  $7,500 profit 
C)  $7,500 loss 
D)  $5,500 loss 
E)  None of the options are correct.

Question 20

Which one of the following statements regarding delivery is true?

Accepted Answer

A)  Most futures contracts result in actual delivery. 
B)  Only 1% to 3% of futures contracts result in actual delivery. 
C)  Only 15% of futures contracts result in actual delivery. 
D)  Approximately 50% of futures contracts result in actual delivery. 
E)  Futures contracts never result in actual delivery. 
A)  Most futures contracts result in actual delivery. 
B)  Only 1% to 3% of futures contracts result in actual delivery. 
C)  Only 15% of futures contracts result in actual delivery. 
D)  Approximately 50% of futures contracts result in actual delivery. 
E)  Futures contracts never result in actual delivery.

Exam 22: Futures Markets

You hold one long oil futures contract that expires in April. To close your position in oil futures before the delivery date, you must

Which one of the following statements regarding "basis" is true?

The expectations hypothesis of futures pricing

The terms of futures contracts, such as the quality and quantity of the commodity and the delivery date, are

Foreign currency futures contracts are actively traded on the

Foreign currency futures contracts are actively traded on the

You purchased one wheat future contract at $5.04 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $4.98 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P 500 Index, you could make an arbitrage profit by

A trader who has a __________ position in oil futures believes the price of oil will __________ in the future.

Metals and energy currency futures contracts are actively traded on

Some of the newer futures contracts includeI) fashion futures.II) weather futures.III) electricity futures.IV) entertainment futures.

You purchased 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.

The establishment of a futures market in a commodity should not have a major impact on spot prices because

Futures contracts __________ traded on an organized exchange, and forward contracts __________ traded on an organized exchange.

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

Who guarantees that a futures contract will be fulfilled?

The open interest on silver futures at a particular time is the

You sold one silver future contract at $2 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $3.50 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

Which one of the following statements regarding delivery is true?

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

Filters

A trader who has a position in oil futures believes the price of oil will in the future.

Futures contracts traded on an organized exchange, and forward contracts traded on an organized exchange.