Question 1

Agricultural futures contracts are actively traded on

Accepted Answer

A)  milk. 
B)  orange juice. 
C)  lumber. 
D)  milk and orange juice. 
E)  All of the options are correct. 
A)  milk. 
B)  orange juice. 
C)  lumber. 
D)  milk and orange juice. 
E)  All of the options are correct.

Question 2

You purchased one corn future contract at $5.30 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $5.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

A)  $1000 profit 
B)  $20 profit 
C)  $1000 loss 
D)  $20 loss 
E)  None of the options are correct. 
A)  $1000 profit 
B)  $20 profit 
C)  $1000 loss 
D)  $20 loss 
E)  None of the options are correct.

Question 3

Which of the following is false about profits from futures contracts?I) 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.II) It is possible for both the holder of the long position and the holder of the short position to earn a profit.III) The clearinghouse makes most of the profit.IV) The amount that the holder of the long position gains must equal the amount that the holder of the short position loses.

Accepted Answer

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

Question 4

To hedge a short position in Treasury bonds, an investor would most likely

Accepted Answer

A)  ignore interest rate futures. 
B)  buy S&P futures. 
C)  buy interest rate futures. 
D)  sell Treasury bonds in the spot market. 
A)  ignore interest rate futures. 
B)  buy S&P futures. 
C)  buy interest rate futures. 
D)  sell Treasury bonds in the spot market.

Question 5

On April 1, you bought 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 6

The process of marking to market

Accepted Answer

A)  posts gains or losses to each account daily. 
B)  may result in margin calls. 
C)  impacts only long positions. 
D)  posts gains or losses to each account daily and may result in margin calls. 
E)  All of the options are correct. 
A)  posts gains or losses to each account daily. 
B)  may result in margin calls. 
C)  impacts only long positions. 
D)  posts gains or losses to each account daily and may result in margin calls. 
E)  All of the options are correct.

Question 7

Normal backwardation

Accepted Answer

A)  maintains that, for most commodities, there are natural hedgers who desire to shed risk. 
B)  maintains that speculators will enter the long side of the contract only if the futures price is below the expected spot price. 
C)  assumes that risk premiums in the futures markets are based on systematic risk. 
D)  maintains that, for most commodities, there are natural hedgers who desire to shed risk, and that speculators will enter the long side of the contract only if the futures price is below the expected spot price. 
E)  maintains that speculators will enter the long side of the contract only if the futures price is below the expected spot price and assumes that risk premiums in the futures markets are based on systematic risk. 
A)  maintains that, for most commodities, there are natural hedgers who desire to shed risk. 
B)  maintains that speculators will enter the long side of the contract only if the futures price is below the expected spot price. 
C)  assumes that risk premiums in the futures markets are based on systematic risk. 
D)  maintains that, for most commodities, there are natural hedgers who desire to shed risk, and that speculators will enter the long side of the contract only if the futures price is below the expected spot price. 
E)  maintains that speculators will enter the long side of the contract only if the futures price is below the expected spot price and assumes that risk premiums in the futures markets are based on systematic risk.

Question 8

A decrease in the basis will __________ a long hedger and __________ a short hedger.

Accepted Answer

A)  hurt; benefit 
B)  hurt; hurt 
C)  benefit; hurt 
D)  benefit; benefit 
E)  benefit; have no effect upon 
A)  hurt; benefit 
B)  hurt; hurt 
C)  benefit; hurt 
D)  benefit; benefit 
E)  benefit; have no effect upon

Question 9

Which of the following items is specified in a futures contract?I) The contract sizeII) The maximum acceptable price range during the life of the contractIII) The acceptable grade of the commodity on which the contract is heldIV) The market price at expirationV) The settlement price

Accepted Answer

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

Question 10

A trader who has a __________ position in gold futures wants the price of gold to __________ in the future.

Accepted Answer

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

Question 11

Given a stock index with a value of $1,000, an anticipated dividend of $30, and a risk-free rate of 6%, what should be the value of one futures contract on the index?

Accepted Answer

A)  $943.40 
B)  $970.00 
C)  $1,030.00 
D)  $915.09 
E)  $1,000.00 
A)  $943.40 
B)  $970.00 
C)  $1,030.00 
D)  $915.09 
E)  $1,000.00

Question 12

On January 1, the listed spot and futures prices of a Treasury bond were 95-4 and 95-6. You sold $100,000 par value Treasury bonds and purchased one Treasury bond futures contract. One month later, the listed spot price and futures prices were 95 and 94-4, respectively. If you were to liquidate your position, your profits would be a

Accepted Answer

A)  $125 loss. 
B)  $125 profit. 
C)  $1,060.50 loss. 
D)  $1,062.50 profit. 
E)  None of the options are correct. 
A)  $125 loss. 
B)  $125 profit. 
C)  $1,060.50 loss. 
D)  $1,062.50 profit. 
E)  None of the options are correct.

Question 13

If you took a long position in a pork bellies futures contract and then forgot about it, what would happen at the expiration of the contract?

Accepted Answer

A)  Nothing-the seller understands that these things happen. 
B)  You would wake up to find the pork bellies on your front lawn. 
C)  Your broker would send you a nasty letter. 
D)  You would be notified that you owe the holder of the short position a certain amount of cash. 
E)  You would be notified that you have to pay a penalty in addition to the regular cost of the pork bellies. 
A)  Nothing-the seller understands that these things happen. 
B)  You would wake up to find the pork bellies on your front lawn. 
C)  Your broker would send you a nasty letter. 
D)  You would be notified that you owe the holder of the short position a certain amount of cash. 
E)  You would be notified that you have to pay a penalty in addition to the regular cost of the pork bellies.

Question 14

The buyer of a futures contract is said to have a __________ position, and the seller of a futures contract is said to have a __________ position in futures.

Accepted Answer

A)  long; short 
B)  long; long 
C)  short; short 
D)  short; long 
E)  margined; long 
A)  long; short 
B)  long; long 
C)  short; short 
D)  short; long 
E)  margined; long

Question 15

Which of the following statements is false? I) The maintenance-margin is the amount of money you post with your broker when you buy or sell a futures contract.
II) If the value of the margin account falls below the maintenance-margin requirement, the holder of the contract will receive a margin call.
III) A margin deposit can only be met with cash.
IV) All futures contracts require the same margin deposit.

Accepted Answer

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

Question 16

Investors who take long positions in futures agree to __________ of the commodity on the delivery date, and those who take the short positions agree to __________ of the commodity.

Accepted Answer

A)  make delivery; take delivery 
B)  take delivery; make delivery 
C)  take delivery; take delivery 
D)  make delivery; make delivery 
E)  negotiate the price; pay the price 
A)  make delivery; take delivery 
B)  take delivery; make delivery 
C)  take delivery; take delivery 
D)  make delivery; make delivery 
E)  negotiate the price; pay the price

Question 17

VM Industries imports numerous parts from India for assembly in the USA. What category of futures contract will likely be used to hedge this transaction?

Accepted Answer

A)  Foreign currency 
B)  Metals and energy 
C)  Interest rates 
D)  Equity indexes 
A)  Foreign currency 
B)  Metals and energy 
C)  Interest rates 
D)  Equity indexes

Question 18

What concept prevents investors from having control over the tax year in which they realize gains and losses?

Accepted Answer

A)  mark-to-market 
B)  volatility 
C)  market timing 
D)  tax code changes 
E)  conservation principle 
A)  mark-to-market 
B)  volatility 
C)  market timing 
D)  tax code changes 
E)  conservation principle

Question 19

Interest rate futures contracts are actively traded on the

Accepted Answer

A)  eurodollars. 
B)  euroyen. 
C)  sterling. 
D)  eurodollars and euroyen. 
E)  All of the options are correct. 
A)  eurodollars. 
B)  euroyen. 
C)  sterling. 
D)  eurodollars and euroyen. 
E)  All of the options are correct.

Question 20

Which of the following is a hedge strategy?

Accepted Answer

A)  An airline going short oil futures. 
B)  A cereal company purchasing corn in the spot market. 
C)  An auto manufacturer longing steal futures. 
D)  A hedge fund shorting index futures. 
A)  An airline going short oil futures. 
B)  A cereal company purchasing corn in the spot market. 
C)  An auto manufacturer longing steal futures. 
D)  A hedge fund shorting index futures.

Exam 22: Futures Markets

Agricultural futures contracts are actively traded on

You purchased one corn future contract at $5.30 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $5.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

To hedge a short position in Treasury bonds, an investor would most likely

On April 1, you bought 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)?

The process of marking to market

Normal backwardation

A decrease in the basis will __________ a long hedger and __________ a short hedger.

Which of the following items is specified in a futures contract?I) The contract sizeII) The maximum acceptable price range during the life of the contractIII) The acceptable grade of the commodity on which the contract is heldIV) The market price at expirationV) The settlement price

A trader who has a __________ position in gold futures wants the price of gold to __________ in the future.

Given a stock index with a value of $1,000, an anticipated dividend of $30, and a risk-free rate of 6%, what should be the value of one futures contract on the index?

If you took a long position in a pork bellies futures contract and then forgot about it, what would happen at the expiration of the contract?

The buyer of a futures contract is said to have a __________ position, and the seller of a futures contract is said to have a __________ position in futures.

Investors who take long positions in futures agree to __________ of the commodity on the delivery date, and those who take the short positions agree to __________ of the commodity.

VM Industries imports numerous parts from India for assembly in the USA. What category of futures contract will likely be used to hedge this transaction?

What concept prevents investors from having control over the tax year in which they realize gains and losses?

Interest rate futures contracts are actively traded on the

Which of the following is a hedge strategy?

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 decrease in the basis will a long hedger and a short hedger.

A trader who has a position in gold futures wants the price of gold to in the future.

The buyer of a futures contract is said to have a position, and the seller of a futures contract is said to have a position in futures.

Investors who take long positions in futures agree to of the commodity on the delivery date, and those who take the short positions agree to of the commodity.