Question 1

One futures contract is traded where both the long and short parties are closing out existing positions.What is the resultant change in the open interest?

Accepted Answer

A) No change 
B) Decrease by one 
C) Decrease by two 
D) Increase by one 
A) No change 
B) Decrease by one 
C) Decrease by two 
D) Increase by one B

Question 2

Margin accounts have the effect of

Accepted Answer

A) Reducing the risk of one party regretting the deal and backing out 
B) Ensuring funds are available to pay traders when they make a profit 
C) Reducing systemic risk due to collapse of futures markets 
D) All of the above 
A) Reducing the risk of one party regretting the deal and backing out 
B) Ensuring funds are available to pay traders when they make a profit 
C) Reducing systemic risk due to collapse of futures markets 
D) All of the above D

Question 3

A limit order

Accepted Answer

A) Is an order to trade up to a certain number of futures contracts at a certain price 
B) Is an order that can be executed at a specified price or one more favorable to the investor 
C) Is an order that must be executed within a specified period of time 
D) None of the above 
A) Is an order to trade up to a certain number of futures contracts at a certain price 
B) Is an order that can be executed at a specified price or one more favorable to the investor 
C) Is an order that must be executed within a specified period of time 
D) None of the above B

Question 4

Who initiates delivery in a corn futures contract

Accepted Answer

A) The party with the long position 
B) The party with the short position 
C) Either party 
D) The exchange 
A) The party with the long position 
B) The party with the short position 
C) Either party 
D) The exchange

Question 5

A hedger takes a long position in a futures contract on a commodity on November 1,2012 to hedge an exposure on March 1,2013.The initial futures price is $60.On December 31,2012 the futures price is $61.On March 1,2013 it is $64.The contract is closed out on March 1,2013.What gain is recognized in the accounting year January 1 to December 31,2013? Each contract is on 1000 units of the commodity.

Accepted Answer

A) $0 
B) $1,000 
C) $3,000 
D) $4,000 
A) $0 
B) $1,000 
C) $3,000 
D) $4,000

Question 6

A speculator takes a long position in a futures contract on a commodity on November 1,2012 to hedge an exposure on March 1,2013.The initial futures price is $60.On December 31,2012 the futures price is $61.On March 1,2013 it is $64.The contract is closed out on March 1,2013.What gain is recognized in the accounting year January 1 to December 31,2013? Each contract is on 1000 units of the commodity.

Accepted Answer

A)  $0 
B) $1,000 
C)  $3,000 
D) $4,000 
A)  $0 
B) $1,000 
C)  $3,000 
D) $4,000

Question 7

Clearing houses are

Accepted Answer

A) Never used in futures markets and sometimes used in OTC markets 
B) Used in OTC markets, but not in futures markets 
C) Always used in futures markets and sometimes used in OTC markets 
D) Always used in both futures markets and OTC markets 
A) Never used in futures markets and sometimes used in OTC markets 
B) Used in OTC markets, but not in futures markets 
C) Always used in futures markets and sometimes used in OTC markets 
D) Always used in both futures markets and OTC markets

Question 8

Which entity in the United States takes primary responsibility for regulating futures market?

Accepted Answer

A) Federal Reserve Board 
B) Commodities Futures Trading Commission (CFT
C)  
C) Security and Exchange Commission (SE
C)  
D) US Treasury 
A) Federal Reserve Board 
B) Commodities Futures Trading Commission (CFT
C)  
C) Security and Exchange Commission (SE
C)  
D) US Treasury

Question 9

The frequency with which futures margin accounts are adjusted for gains and losses is

Accepted Answer

A) Daily 
B) Weekly 
C) Monthly 
D) Quarterly 
A) Daily 
B) Weekly 
C) Monthly 
D) Quarterly

Question 10

Which of the following is NOT true

Accepted Answer

A) Futures contracts nearly always last longer than forward contracts 
B) Futures contracts are standardized; forward contracts are not. 
C) Delivery or final cash settlement usually takes place with forward contracts; the same is not true of futures contracts. 
D) Forward contracts usually have one specified delivery date; futures contract often have a range of delivery dates. 
A) Futures contracts nearly always last longer than forward contracts 
B) Futures contracts are standardized; forward contracts are not. 
C) Delivery or final cash settlement usually takes place with forward contracts; the same is not true of futures contracts. 
D) Forward contracts usually have one specified delivery date; futures contract often have a range of delivery dates.

Question 11

Which of the following are cash settled

Accepted Answer

A) All futures contracts 
B) All option contracts 
C) Futures on commodities 
D) Futures on stock indices 
A) All futures contracts 
B) All option contracts 
C) Futures on commodities 
D) Futures on stock indices

Question 12

A company enters into a short futures contract to sell 50,000 units of a commodity for 70 cents per unit.The initial margin is $4,000 and the maintenance margin is $3,000.What is the futures price per unit above which there will be a margin call?

Accepted Answer

A) 78 cents 
B) 76 cents 
C) 74 cents 
D) 72 cents 
A) 78 cents 
B) 76 cents 
C) 74 cents 
D) 72 cents

Question 13

You sell one December futures contracts when the futures price is $1,010 per unit.Each contract is on 100 units and the initial margin per contract that you provide is $2,000.The maintenance margin per contract is $1,500.During the next day the futures price rises to $1,012 per unit.What is the balance of your margin account at the end of the day?

Accepted Answer

A) $1,800 
B) $3,300 
C) $2,200 
D) $3,700 
A) $1,800 
B) $3,300 
C) $2,200 
D) $3,700

Question 14

For a futures contract trading in April 2012,the open interest for a June 2012 contract,when compared to the open interest for Sept 2012 contracts,is usually

Accepted Answer

A) Higher 
B) Lower 
C) The same 
D) Equally likely to be higher or lower 
A) Higher 
B) Lower 
C) The same 
D) Equally likely to be higher or lower

Question 15

Which of the following best describes central clearing parties

Accepted Answer

A) Help market participants to value derivative transactions 
B) Must be used for all OTC derivative transactions 
C) Are used for futures transactions 
D) Perform a similar function to exchange clearing houses 
A) Help market participants to value derivative transactions 
B) Must be used for all OTC derivative transactions 
C) Are used for futures transactions 
D) Perform a similar function to exchange clearing houses

Question 16

A company enters into a long futures contract to buy 1,000 units of a commodity for $60 per unit.The initial margin is $6,000 and the maintenance margin is $4,000.What futures price will allow $2,000 to be withdrawn from the margin account?

Accepted Answer

A) $58 
B) $62 
C) $64 
D)  $66 
A) $58 
B) $62 
C) $64 
D)  $66

Question 17

With bilateral clearing,the number of agreements between four dealers,who trade with each other, is

Accepted Answer

A) 12 
B) 1 
C) 6 
D) 2 
A) 12 
B) 1 
C) 6 
D) 2

Question 18

In the corn futures contract a number of different types of corn can be delivered (with price adjustments specified by the exchange)and there are a number of different delivery locations.Which of the following is true

Accepted Answer

A) This flexibility tends increase the futures price. 
B) This flexibility tends decrease the futures price. 
C) This flexibility may increase and may decrease the futures price. 
D) This flexibility has no effect on the futures price 
A) This flexibility tends increase the futures price. 
B) This flexibility tends decrease the futures price. 
C) This flexibility may increase and may decrease the futures price. 
D) This flexibility has no effect on the futures price

Question 19

Which of the following is true

Accepted Answer

A) Both forward and futures contracts are traded on exchanges. 
B) Forward contracts are traded on exchanges, but futures contracts are not. 
C) Futures contracts are traded on exchanges, but forward contracts are not. 
D) Neither futures contracts nor forward contracts are traded on exchanges. 
A) Both forward and futures contracts are traded on exchanges. 
B) Forward contracts are traded on exchanges, but futures contracts are not. 
C) Futures contracts are traded on exchanges, but forward contracts are not. 
D) Neither futures contracts nor forward contracts are traded on exchanges.

Question 20

A haircut of 20% means that

Accepted Answer

A) A bond with a market value of $100 is considered to be worth $80 when used to satisfy a collateral request 
B) A bond with a face value of $100 is considered to be worth $80 when used to satisfy a collateral request 
C) A bond with a market value of $100 is considered to be worth $83.3 when used to satisfy a collateral request 
D) A bond with a face value of $100 is considered to be worth $83.3 when used to satisfy a collateral request 
A) A bond with a market value of $100 is considered to be worth $80 when used to satisfy a collateral request 
B) A bond with a face value of $100 is considered to be worth $80 when used to satisfy a collateral request 
C) A bond with a market value of $100 is considered to be worth $83.3 when used to satisfy a collateral request 
D) A bond with a face value of $100 is considered to be worth $83.3 when used to satisfy a collateral request

Exam 2: Mechanics of Futures Markets

One futures contract is traded where both the long and short parties are closing out existing positions.What is the resultant change in the open interest?

Margin accounts have the effect of

A limit order

Who initiates delivery in a corn futures contract

Clearing houses are

Which entity in the United States takes primary responsibility for regulating futures market?

The frequency with which futures margin accounts are adjusted for gains and losses is

Which of the following is NOT true

Which of the following are cash settled

A company enters into a short futures contract to sell 50,000 units of a commodity for 70 cents per unit.The initial margin is $4,000 and the maintenance margin is $3,000.What is the futures price per unit above which there will be a margin call?

For a futures contract trading in April 2012,the open interest for a June 2012 contract,when compared to the open interest for Sept 2012 contracts,is usually

Which of the following best describes central clearing parties

A company enters into a long futures contract to buy 1,000 units of a commodity for $60 per unit.The initial margin is $6,000 and the maintenance margin is $4,000.What futures price will allow $2,000 to be withdrawn from the margin account?

With bilateral clearing,the number of agreements between four dealers,who trade with each other, is

In the corn futures contract a number of different types of corn can be delivered (with price adjustments specified by the exchange)and there are a number of different delivery locations.Which of the following is true

Which of the following is true

A haircut of 20% means that

Introduction

Hedging Strategies Using Futures

Interest Rates

Determination of Forward and Futures Prices

Interest Rate Futures

Swaps

Securitization and the Credit Crisis of 2007

OIS Discounting, Credit Issues, and Funding Costs

Mechanics of Options Markets

Properties of Stock Options

Trading Strategies Involving Options

Binomial Trees

Wiener Processes and Ito’s Lemma

The Black-Scholes-Merton Model

Employee Stock Options

Options on Stock Indices and Currencies

Futures Options

The Greek Letters

Volatility Smiles

Basic Numerical Procedures

Value at Risk

Estimating Volatilities and Correlations

Credit Risk

Credit Derivatives

Exotic Options

Filters