Exam 20: Futures Contracts

What is the general approach that is used by firms in deciding what risks to hedge and what risks to bear?

Speculators in the futures market:

An investor just sold seven contracts of June corn on the CBOT. The price per bushel is $1.64, and each contract is for 5000 bushels. The performance bond (initial margin deposit) is $2000 per contract with the maintenance margin at $1250. (a) How much does the investor have to deposit on the investment? (b) If the price of the futures on the three days following the contract sale are: 1.60, 1.66, and 1.68 calculate the current equity on each of the next three days. (c) If the investor closes out his position on the fourth day, what is his final gain or loss over the four days in dollars and as a percentage of investment?

Explain a long position and a short position in futures trading.

An investor planning to buy bonds in the future and wishing to lock in the current price using bond contracts should enter a:

To protect the value of a bond portfolio against a rise in interest rates using bond futures contracts, the portfolio owner should execute a:

Futures contracts are handled by specialists on futures exchanges.

Explain the difference between a forward contract and a futures contract.

Stock-index futures can be used to hedge against which of the following types of risks?

Most futures contracts are settled by delivery.