Question 1

Index arbitrage attempts to exploit price differences between two different stock indices.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not a potential advantage of speculating in futures?

Accepted Answer

A)  Leverage 
B)  Ease of transacting 
C)  Low transactions costs 
D)  High and narrow probability distribution of expected returns 
A)  Leverage 
B)  Ease of transacting 
C)  Low transactions costs 
D)  High and narrow probability distribution of expected returns

Question 3

Short selling is not allowed in single stock futures (SSFs).

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements about derivatives is correct?

Accepted Answer

A)  Both futures and options represent zero-sum games. 
B)  Futures represent a zero-sum game, but options do not. 
C)  Options represent a zero-sum game, but futures do not. 
D)  Neither options nor futures represent a zero-sum game. 
A)  Both futures and options represent zero-sum games. 
B)  Futures represent a zero-sum game, but options do not. 
C)  Options represent a zero-sum game, but futures do not. 
D)  Neither options nor futures represent a zero-sum game.

Question 5

The initial margin required for futures trading:

Accepted Answer

A)  is only put up by the seller. 
B)  is only put up by the buyer. 
C)  is put up by the party initiating the transaction, either the buyer or the seller. 
D)  must be put up by both the buyer and the seller. 
A)  is only put up by the seller. 
B)  is only put up by the buyer. 
C)  is put up by the party initiating the transaction, either the buyer or the seller. 
D)  must be put up by both the buyer and the seller.

Question 6

With an anticipatory hedge an investor anticipates a falling market and liquidates his position.

Accepted Answer

A) True 
 B)False

Question 7

With futures, hedging requires one to simply take an opposite position.

Accepted Answer

A) True 
 B)False

Question 8

Futures contracts are regulated by the:

Accepted Answer

A)  Securities Exchange Commission. 
B)  National Association of Security Dealers. 
C)  National Association of Commodity Dealers. 
D)  Commodity Futures Trading Commission. 
A)  Securities Exchange Commission. 
B)  National Association of Security Dealers. 
C)  National Association of Commodity Dealers. 
D)  Commodity Futures Trading Commission.

Question 9

The initial margin requirement on an SSF contract is 50 percent.

Accepted Answer

A) True 
 B)False

Question 10

Do options on futures serve any economic purpose, or are they just sophisticated games?

Accepted Answer

Options on futures transfer ri

Question 11

Which of the following statements about futures trading is incorrect?

Accepted Answer

A)  There are no specialists on futures exchanges. 
B)  All futures contracts are eligible for margin trading. 
C)  Trading is halted for the day if the price reaches the daily limit. 
D)  The uptick rule applies to the shorting of futures contracts. 
A)  There are no specialists on futures exchanges. 
B)  All futures contracts are eligible for margin trading. 
C)  Trading is halted for the day if the price reaches the daily limit. 
D)  The uptick rule applies to the shorting of futures contracts.

Question 12

The number of unliquidated futures contracts at any point in time is called:

Accepted Answer

A)  margin. 
B)  open interest. 
C)  hedged position. 
D)  marked to market position. 
A)  margin. 
B)  open interest. 
C)  hedged position. 
D)  marked to market position.

Question 13

An attempt to exploit differences between the prices of a stock index futures contract and the prices of the underlying stocks is known as:

Accepted Answer

A)  index programming. 
B)  arbitrage speculation. 
C)  index arbitrage. 
D)  program speculation. 
A)  index programming. 
B)  arbitrage speculation. 
C)  index arbitrage. 
D)  program speculation.

Question 14

A futures contract is:

Accepted Answer

A)  a negotiable, nonmarketable instrument. 
B)  a security, like a stock or bond. 
C)  a standardized, transferable agreement providing for deferred delivery of an asset. 
D)  not a legal contract, and therefore its terms can be changed. 
A)  a negotiable, nonmarketable instrument. 
B)  a security, like a stock or bond. 
C)  a standardized, transferable agreement providing for deferred delivery of an asset. 
D)  not a legal contract, and therefore its terms can be changed.

Question 15

An investor who sells a T-bond futures contract is expecting to profit from:

Accepted Answer

A)  an increase in the price of the T-bond. 
B)  an increase in the level of interest rates. 
C)  interest rates remaining unchanged. 
D)  the coupon payments from the T-bond. 
A)  an increase in the price of the T-bond. 
B)  an increase in the level of interest rates. 
C)  interest rates remaining unchanged. 
D)  the coupon payments from the T-bond.

Question 16

Futures trade on the:

Accepted Answer

A)  spot market. 
B)  over-the-counter market. 
C)  forward exchanges. 
D)  futures exchanges. 
A)  spot market. 
B)  over-the-counter market. 
C)  forward exchanges. 
D)  futures exchanges.

Question 17

When trading futures, margin:

Accepted Answer

A)  is seldom used. 
B)  indicates that credit is being extended. 
C)  serves as a down payment. 
D)  in effect, is a performance bond. 
A)  is seldom used. 
B)  indicates that credit is being extended. 
C)  serves as a down payment. 
D)  in effect, is a performance bond.

Question 18

Investors in futures can take either a long, short, or neutral position.

Accepted Answer

A) True 
 B)False

Question 19

What is the focus of speculators who spread stock-index futures?

Accepted Answer

Stock-index spreaders think that the pri

Question 20

The basis is equal to the:

Accepted Answer

A)  cash price. 
B)  futures price. 
C)  cash price + futures price. 
D)  cash price - futures price. 
A)  cash price. 
B)  futures price. 
C)  cash price + futures price. 
D)  cash price - futures price.

Exam 20: Futures Contracts

Index arbitrage attempts to exploit price differences between two different stock indices.

Which of the following is not a potential advantage of speculating in futures?

Short selling is not allowed in single stock futures (SSFs).

Which of the following statements about derivatives is correct?

The initial margin required for futures trading:

With an anticipatory hedge an investor anticipates a falling market and liquidates his position.

With futures, hedging requires one to simply take an opposite position.

Futures contracts are regulated by the:

The initial margin requirement on an SSF contract is 50 percent.

Do options on futures serve any economic purpose, or are they just sophisticated games?

Which of the following statements about futures trading is incorrect?

The number of unliquidated futures contracts at any point in time is called:

An attempt to exploit differences between the prices of a stock index futures contract and the prices of the underlying stocks is known as:

A futures contract is:

An investor who sells a T-bond futures contract is expecting to profit from:

Futures trade on the:

When trading futures, margin:

Investors in futures can take either a long, short, or neutral position.

What is the focus of speculators who spread stock-index futures?

The basis is equal to the:

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