Question 1

Which one of the following is a difference between a forward contract and a futures contract?

Accepted Answer

A) Forward contracts are based on commodities while futures contracts are based on financial instruments. 
B) The price of the asset exchanged is determined when a forward contract is entered while the price is set on the exchange date for a futures contract. 
C) A forward contract is a formal agreement while a futures contract is an informal agreement. 
D) Futures contracts are managed through an organized exchange while forward contracts are not. 
E) There are no differences between forward and futures contracts. 
A) Forward contracts are based on commodities while futures contracts are based on financial instruments. 
B) The price of the asset exchanged is determined when a forward contract is entered while the price is set on the exchange date for a futures contract. 
C) A forward contract is a formal agreement while a futures contract is an informal agreement. 
D) Futures contracts are managed through an organized exchange while forward contracts are not. 
E) There are no differences between forward and futures contracts. D

Question 2

You purchased four September corn futures contracts at what turned out to be the lowest price of the day and sold those contracts at today's close. What is your total profit or loss on this investment?
$\begin{array}{llll}
&\text { Contact } & \text { Open } & \text {High} & \text {  Low}& \text { Close}\
\text { Sep. Corn. }&\text { 5,000 bu, cents/bu } & 615.50 & 618.25& 608.00 & 612.50\
\text { Sep. Wheat, }&\text { 5,000 bu, cents/bu } &814,00 &820.00 &808,50 & 811,00
\end{array}$

Accepted Answer

A) $287.50 
B) $1,100 
C) $2,875 
D) $1,100 . 
E) $14,250. 
A) $287.50 
B) $1,100 
C) $2,875 
D) $1,100 . 
E) $14,250. B

Question 3

Your broker requires an initial margin of $4,000 per futures contract on soybeans and a maintenance margin of $3,000 per contract. Soybean futures contracts are based on 5,000 bushels and quoted in cents per bushel. Yesterday, you bought six soybean futures contracts at the closing settlement price of 1380. Today, the settlement quote is 1335. All margin calls restore margin levels to their initial margin level. Will you receive a margin call and, if so, for what amount?

Accepted Answer

A) no margin call 
B) call for $2,750 
C) call for $8,000 
D) call for $13,500 
E) call for $20,000 
A) no margin call 
B) call for $2,750 
C) call for $8,000 
D) call for $13,500 
E) call for $20,000 D

Question 4

Which one of the following is the strategy of earning risk-free profits by taking advantage of any unusual differences between cash and futures prices?

Accepted Answer

A) cash-futures arbitrage 
B) mark to market 
C) margin calling 
D) basis recognition 
E) cash spotting 
A) cash-futures arbitrage 
B) mark to market 
C) margin calling 
D) basis recognition 
E) cash spotting

Question 5

What is the closing value of one December futures contract on wheat?
$\begin{array}{llll}
&\text { Contact } & \text { Open } & \text {High} & \text {  Low}& \text { Close}\
\text { Dec. Corn. }&\text { 5,000 bu, cents/bu } & 620.50 & 623.50 & 613.00 & 617.00\
\text { Dec. Wheat, }&\text { 5,000 bu, cents/bu } &804,00 &810.00 &798,50 & 801,00
\end{array}$

Accepted Answer

A) $8.01 
B) $801.00 
C) $4,850 
D) $40,050 
E) $408,500 
A) $8.01 
B) $801.00 
C) $4,850 
D) $40,050 
E) $408,500

Question 6

You own a 6-month futures contract on U.S. Treasury notes. The underlying notes have a duration of 3.87 years. What is the duration of the futures contract?

Accepted Answer

A) 3.37 years 
B) 3.67 years 
C) 3.87 years 
D) 4.12 years 
E) 4.37 years 
A) 3.37 years 
B) 3.67 years 
C) 3.87 years 
D) 4.12 years 
E) 4.37 years

Question 7

A futures price is a price that is negotiated ________ and paid ________.

Accepted Answer

A) today; in the future 
B) today; today 
C) in the future; in the future 
D) in the future; today 
E) either today or in the future; in the future 
A) today; in the future 
B) today; today 
C) in the future; in the future 
D) in the future; today 
E) either today or in the future; in the future

Question 8

A stock is currently selling for $38.50 a share and has a dividend yield of 1.75%. The risk-free rate is 3.5%. What is the 2-month futures price on this stock?

Accepted Answer

A) $38.27 
B) $38.41 
C) $38.56 
D) $38.61 
E) $38.70 
A) $38.27 
B) $38.41 
C) $38.56 
D) $38.61 
E) $38.70

Question 9

Which one of the following is a trade that will close out a previously established futures position?

Accepted Answer

A) maintenance call 
B) margin call 
C) reverse trade 
D) position reversal 
E) margin closeout 
A) maintenance call 
B) margin call 
C) reverse trade 
D) position reversal 
E) margin closeout

Question 10

An investor who accepts the risk of a loss in exchange for the chance to earn a profit is referred to as which one of the following?

Accepted Answer

A) hedger 
B) short seller 
C) speculator 
D) broker 
E) dealer 
A) hedger 
B) short seller 
C) speculator 
D) broker 
E) dealer

Question 11

You have a market position which allows you to profit when market prices increase but causes you a loss when market prices decline. This position is defined by which one of the following terms?

Accepted Answer

A) forward position 
B) futures position 
C) long position 
D) short position 
E) speculative position 
A) forward position 
B) futures position 
C) long position 
D) short position 
E) speculative position

Question 12

What is the closing value of one December futures contract on corn?
$\begin{array}{llll}
&\text { Contact } & \text { Open } & \text {High} & \text {  Low}& \text { Close}\
\text { Dec. Corn. }&\text { 5,000 bu, cents/bu } & 620.50 & 623.50 & 613.00 & 617.00\
\text { Dec. Wheat, }&\text { 5,000 bu, cents/bu } &804,00 &810.00 &798,50 & 801,00
\end{array}$

Accepted Answer

A) $6.17 
B) $617.00 
C) $30,850 
D) $308,500 
E) $3,085,000 
A) $6.17 
B) $617.00 
C) $30,850 
D) $308,500 
E) $3,085,000

Question 13

Which one of the following statements is true regarding futures contracts?

Accepted Answer

A) Futures prices are generally set equal to the spot price on the delivery date. 
B) Futures contracts generally grant the buyer the option to accept only a portion of the contract. 
C) Cost and convenience are the two key considerations when establishing the settlement procedures. 
D) The seller of a futures contract has the option to deliver cash in an amount equal to the contract value in lieu of the underlying asset. 
E) The buyer and seller of the contract negotiate the price on the maturity date. 
A) Futures prices are generally set equal to the spot price on the delivery date. 
B) Futures contracts generally grant the buyer the option to accept only a portion of the contract. 
C) Cost and convenience are the two key considerations when establishing the settlement procedures. 
D) The seller of a futures contract has the option to deliver cash in an amount equal to the contract value in lieu of the underlying asset. 
E) The buyer and seller of the contract negotiate the price on the maturity date.

Question 14

You purchased two futures contracts on soybeans at a price quote of 1344′0. The initial margin requirement is $4,750 per contract and the maintenance margin is $3,500 per contract. The contract quantity is 5,000 bushels and the price quote is in cents per bushel. What is the lowest the price quote can go before you receive a margin call?

Accepted Answer

A) 1314′0 
B) 1315′0 
C) 1319′0 
D) 1322′0 
E) 1325′0 
A) 1314′0 
B) 1315′0 
C) 1319′0 
D) 1322′0 
E) 1325′0

Question 15

Which one of the following is a contract managed by an organized exchange that allows a buyer and seller to agree on a price today for an exchange of goods that will occur sometime in the future?

Accepted Answer

A) futures contract 
B) spot market 
C) cash market 
D) forward contract 
E) discounted contract 
A) futures contract 
B) spot market 
C) cash market 
D) forward contract 
E) discounted contract

Question 16

Which of the following features apply to a futures contract?
I. zero-sum game
II. derivative security
III. maturity date
IV. settlement procedure

Accepted Answer

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

Question 17

Which one of the following statements is correct?

Accepted Answer

A) Futures contracts must be held to maturity. 
B) Futures contracts can be closed out only by contract buyers. 
C) Futures contracts can be closed out, but only during the week prior to maturity. 
D) You cannot avoid accepting delivery once you purchase a futures contract. 
E) Futures contracts can be closed out by entering a reverse trade. 
A) Futures contracts must be held to maturity. 
B) Futures contracts can be closed out only by contract buyers. 
C) Futures contracts can be closed out, but only during the week prior to maturity. 
D) You cannot avoid accepting delivery once you purchase a futures contract. 
E) Futures contracts can be closed out by entering a reverse trade.

Question 18

The 3-month futures price on a non-dividend-paying stock is $21.22. The risk-free rate is 1.5% and the market rate is 8.9%. What is the spot rate for this stock if spot-futures parity exists?

Accepted Answer

A) $21.14 
B) $21.43 
C) $21.51 
D) $21.60 
E) $21.78 
A) $21.14 
B) $21.43 
C) $21.51 
D) $21.60 
E) $21.78

Question 19

The spot price of corn is $5.85 a bushel. The 3-month futures price of corn is $5.80. Which one of the following best describes this market?

Accepted Answer

A) buyer's market 
B) arbitrage opportunity 
C) inverted market 
D) carrying-charge market 
E) market parity 
A) buyer's market 
B) arbitrage opportunity 
C) inverted market 
D) carrying-charge market 
E) market parity

Question 20

Futures margin is defined as the deposit of funds into a futures trading account for which one of the following purposes?

Accepted Answer

A) purchase additional futures contracts 
B) take a hedge position in the future 
C) cover potential losses from outstanding positions 
D) cover the trading costs and commissions 
E) cover the future costs of reversing the position 
A) purchase additional futures contracts 
B) take a hedge position in the future 
C) cover potential losses from outstanding positions 
D) cover the trading costs and commissions 
E) cover the future costs of reversing the position

Which one of the following is a difference between a forward contract and a futures contract?

Which one of the following is the strategy of earning risk-free profits by taking advantage of any unusual differences between cash and futures prices?

What is the closing value of one December futures contract on wheat? Contact Open High Low Close Dec. Corn. 5,000 bu, cents/bu 620.50 623.50 613.00 617.00 Dec. Wheat, 5,000 bu, cents/bu 804,00 810.00 798,50 801,00

You own a 6-month futures contract on U.S. Treasury notes. The underlying notes have a duration of 3.87 years. What is the duration of the futures contract?

A futures price is a price that is negotiated and paid .

A stock is currently selling for $38.50 a share and has a dividend yield of 1.75%. The risk-free rate is 3.5%. What is the 2-month futures price on this stock?

Which one of the following is a trade that will close out a previously established futures position?

An investor who accepts the risk of a loss in exchange for the chance to earn a profit is referred to as which one of the following?

You have a market position which allows you to profit when market prices increase but causes you a loss when market prices decline. This position is defined by which one of the following terms?

What is the closing value of one December futures contract on corn? Contact Open High Low Close Dec. Corn. 5,000 bu, cents/bu 620.50 623.50 613.00 617.00 Dec. Wheat, 5,000 bu, cents/bu 804,00 810.00 798,50 801,00

Which one of the following statements is true regarding futures contracts?

Which one of the following is a contract managed by an organized exchange that allows a buyer and seller to agree on a price today for an exchange of goods that will occur sometime in the future?

Which of the following features apply to a futures contract? I. zero-sum game II. derivative security III. maturity date IV. settlement procedure

Which one of the following statements is correct?

The 3-month futures price on a non-dividend-paying stock is $21.22. The risk-free rate is 1.5% and the market rate is 8.9%. What is the spot rate for this stock if spot-futures parity exists?

The spot price of corn is $5.85 a bushel. The 3-month futures price of corn is $5.80. Which one of the following best describes this market?

Futures margin is defined as the deposit of funds into a futures trading account for which one of the following purposes?

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 14: Futures Contracts

Which one of the following is a difference between a forward contract and a futures contract?

Which one of the following is the strategy of earning risk-free profits by taking advantage of any unusual differences between cash and futures prices?

What is the closing value of one December futures contract on wheat? Contact Open High Low Close Dec. Corn. 5,000 bu, cents/bu 620.50 623.50 613.00 617.00 Dec. Wheat, 5,000 bu, cents/bu 804,00 810.00 798,50 801,00

You own a 6-month futures contract on U.S. Treasury notes. The underlying notes have a duration of 3.87 years. What is the duration of the futures contract?

A futures price is a price that is negotiated ________ and paid ________.

A stock is currently selling for $38.50 a share and has a dividend yield of 1.75%. The risk-free rate is 3.5%. What is the 2-month futures price on this stock?

Which one of the following is a trade that will close out a previously established futures position?

An investor who accepts the risk of a loss in exchange for the chance to earn a profit is referred to as which one of the following?

You have a market position which allows you to profit when market prices increase but causes you a loss when market prices decline. This position is defined by which one of the following terms?

What is the closing value of one December futures contract on corn? Contact Open High Low Close Dec. Corn. 5,000 bu, cents/bu 620.50 623.50 613.00 617.00 Dec. Wheat, 5,000 bu, cents/bu 804,00 810.00 798,50 801,00

Which one of the following statements is true regarding futures contracts?

Which one of the following is a contract managed by an organized exchange that allows a buyer and seller to agree on a price today for an exchange of goods that will occur sometime in the future?

Which of the following features apply to a futures contract? I. zero-sum game II. derivative security III. maturity date IV. settlement procedure

Which one of the following statements is correct?

The 3-month futures price on a non-dividend-paying stock is $21.22. The risk-free rate is 1.5% and the market rate is 8.9%. What is the spot rate for this stock if spot-futures parity exists?

The spot price of corn is $5.85 a bushel. The 3-month futures price of corn is $5.80. Which one of the following best describes this market?

Futures margin is defined as the deposit of funds into a futures trading account for which one of the following purposes?

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

A futures price is a price that is negotiated and paid .