Question 1

A farmer has a long position in barley and hedges it with a short position in wheat. Which one of the following terms applies to this situation?

Accepted Answer

A) cross-arbitrage 
B) parity play 
C) market arbitrage 
D) cross-hedge 
E) program trade 
A) cross-arbitrage 
B) parity play 
C) market arbitrage 
D) cross-hedge 
E) program trade

Question 2

Which one of the following statements is correct concerning an inverted futures market?

Accepted Answer

A) The basis will be negative. 
B) The basis will equal zero. 
C) The cash price will equal the futures price. 
D) The cash price will exceed the futures price. 
E) Arbitrage opportunities must exist. 
A) The basis will be negative. 
B) The basis will equal zero. 
C) The cash price will equal the futures price. 
D) The cash price will exceed the futures price. 
E) Arbitrage opportunities must exist.

Question 3

What is the normal means of delivery on a Treasury note futures contract?

Accepted Answer

A) delivery in cash 
B) change in registered ownership 
C) direct deposit of cash into the seller's bank account 
D) wire transfer of funds from the buyer's bank to the seller's bank 
E) payment by certified check on the maturity date 
A) delivery in cash 
B) change in registered ownership 
C) direct deposit of cash into the seller's bank account 
D) wire transfer of funds from the buyer's bank to the seller's bank 
E) payment by certified check on the maturity date

Question 4

A financial instrument on which a futures contract is based is called which one of the following?

Accepted Answer

A) hedged security 
B) short position 
C) long position 
D) speculative asset 
E) underlying asset 
A) hedged security 
B) short position 
C) long position 
D) speculative asset 
E) underlying asset

Question 5

A long hedge is the addition of which one of the following to a short position in the underlying asset?

Accepted Answer

A) short spot position 
B) any spot position 
C) any futures position 
D) long futures position 
E) either a short spot or short futures position 
A) short spot position 
B) any spot position 
C) any futures position 
D) long futures position 
E) either a short spot or short futures position

Question 6

What is the difference between this day's high and closing prices for one 10-year Treasury note futures contract? Treasury note, $100,000, pts and one-half of 1/32 of a point.
$\begin{array}{ccccc}
\text { Contract } & \text { High } & \text { Low } & \text { Close } \
\text { Jun, } 10 \mathrm{Yr} . \text { Treasury note } & 110^{\prime }25 & 112^{\prime} 05 & 109^{\prime} 80 & 110^{\prime }30
\end{array}$

Accepted Answer

A) $835.00 
B) $950.00 
C) $1,000.00 
D) $1,171.88 
E) $1,218.75 
A) $835.00 
B) $950.00 
C) $1,000.00 
D) $1,171.88 
E) $1,218.75

Question 7

What price will be used for this day for the mark to market per pound on December cotton?
$\begin{array}{lrr}
&\text { Contract } & \text { High }& \text { Low }& \text { Close}& \text { Chg }\
\text { May, Coffee, }& 37,500 \text { lbs., cents } & 138.00& 135.50 & 137.15 & 2.20\
 \text { per  I b } &\
\text { Dec, Cotton, }&\text { 50,000 lbs., cents } & 80.59 & 78.85 & 80.63 & .27\
 \text {per  I b  } &\
\end{array}$

Accepted Answer

A) $.7885 
B) $.8063 
C) $78.85 
D) $80.59 
E) $80.63 
A) $.7885 
B) $.8063 
C) $78.85 
D) $80.59 
E) $80.63

Question 8

You purchased seven September wheat futures contracts at the open today and sold those contracts at the close. What is your total profit or loss on these contracts?
$\begin{array}{llll}
&\text { Contact } & \text { Open } & \text {High} & \text {  Low}& \text { Close}\
\text { Sep. Corn. }&\text { 5,000 bu, cents/bu } & 615.50 & 618.25& 608.00 & 612.50\
\text { Sep. Wheat, }&\text { 5,000 bu, cents/bu } &814,00 &820.00 &808,50 & 811,00
\end{array}$

Accepted Answer

A) $10,500 
B) $1,050 
C) $105 
D) $10.50 
E) $.03 
A) $10,500 
B) $1,050 
C) $105 
D) $10.50 
E) $.03

Question 9

You are trying to value a 3-month futures contract on a stock. The market rate of return is 11.2 percent, the risk-free rate is 3.8 percent, and the dividend yield on the stock is 2.6%. The stock is currently selling for $33 a share. What is the value of "T" as used in the formula for computing the future stock price (FT = S(1 − r)^T)?

Accepted Answer

A) .112 
B) .250 
C) .026 
D) .038 
E) .064 
A) .112 
B) .250 
C) .026 
D) .038 
E) .064

Question 10

The spot price on cocoa is $3,840 a ton. The futures price is $3,450 a ton. The basis is ________ and the market is a(n)________ market.

Accepted Answer

A) −390; carrying-charge 
B) −390; inverted 
C) 60; inverted 
D) 390; carrying-charge 
E) 390; inverted 
A) −390; carrying-charge 
B) −390; inverted 
C) 60; inverted 
D) 390; carrying-charge 
E) 390; inverted

Question 11

What is the price difference on a $100,000, 5-year Treasury note futures contract between the high and low prices? Treasury note, $100,000, pts and one-quarter of 1/32 of a point.
$$\begin{array} { c l l l l l } 
\text { Contract } & \text { Oper } & \text { High } & \text { Low } & \text { Clage } \
\text { Jun, } 5 \text { Yr. Treasury note } & 112^{\prime} 067 & 112 ^{\prime}126 & 111 ^{\prime}175 & 111 ^{\prime} 250
\end{array}$$

Accepted Answer

A) $428.13 
B) $512.08 
C) $787.50 
D) $823.42 
E) $846.88 
A) $428.13 
B) $512.08 
C) $787.50 
D) $823.42 
E) $846.88

Question 12

Your broker requires an initial margin of $2,500 and a maintenance margin of $1,500 on Treasury note futures. Treasury note futures contracts are based on a $100,000 par value and quoted in points and one-half of 1/32 of a point. You own one Treasury futures contract that had a closing settlement quote of 112′165 yesterday. Today, the settlement quote is 111′105. Your margin balance at yesterday's close was $2,100. All margin calls restore margin levels to their initial level. Will you receive a margin call based on today's settlement quote and, if so, for what amount?

Accepted Answer

A) no margin call 
B) call for $1,100.50 
C) call for $1,287.50 
D) call for $1,587.50 
E) call for $1,775.00 
A) no margin call 
B) call for $1,100.50 
C) call for $1,287.50 
D) call for $1,587.50 
E) call for $1,775.00

Question 13

You own a portfolio which is valued at $10 million and has a beta of 1.5. You would like to create a riskless portfolio by hedging using S&P 500 futures contracts. The contract size is $250 times the index level. How many futures contracts do you need to acquire if the current S&P 500 index is 1500?

Accepted Answer

A) short 30 contracts 
B) short 40 contracts 
C) long 25 contracts 
D) long 30 contracts 
E) short 50 contracts 
A) short 30 contracts 
B) short 40 contracts 
C) long 25 contracts 
D) long 30 contracts 
E) short 50 contracts

Question 14

In 2007, the Chicago Mercantile Exchange merged with which one of the following exchanges?

Accepted Answer

A) Intercontinental Exchange 
B) New York Board of Trade 
C) Chicago Board of Trade 
D) Coffee, Sugar, and Cocoa Exchange 
E) New York Futures Exchange 
A) Intercontinental Exchange 
B) New York Board of Trade 
C) Chicago Board of Trade 
D) Coffee, Sugar, and Cocoa Exchange 
E) New York Futures Exchange

Question 15

Luke owns a large farming operation that encompasses over 5,000 acres of corn. The crop this year is abundant and will be ready for harvesting next month. Luke likes the market prices today but expects the prices to decline over the next month as the supply of corn increases. Which one of the following positions should Luke take to hedge his corn crop?

Accepted Answer

A) sell in the spot market today 
B) buy in the spot market today 
C) take a long futures position 
D) take a short futures position 
E) sell in the spot market today and take a long position in the futures market 
A) sell in the spot market today 
B) buy in the spot market today 
C) take a long futures position 
D) take a short futures position 
E) sell in the spot market today and take a long position in the futures market

Question 16

Which one of the following statements related to futures contracts is correct?

Accepted Answer

A) The buyer of the contract has a short position. 
B) The buyer of the contract has the right to either accept delivery or cancel the contract. 
C) Futures contracts can be cancelled by either the buyer or the seller with 10 days' notice to the other party. 
D) Both the buyer and the seller of the contract are obligated to fulfill their duties as outlined in the futures contract. 
E) The buyer of the contract must deliver the underlying asset on the settlement date. 
A) The buyer of the contract has a short position. 
B) The buyer of the contract has the right to either accept delivery or cancel the contract. 
C) Futures contracts can be cancelled by either the buyer or the seller with 10 days' notice to the other party. 
D) Both the buyer and the seller of the contract are obligated to fulfill their duties as outlined in the futures contract. 
E) The buyer of the contract must deliver the underlying asset on the settlement date.

Question 17

A futures position that is equal, but opposite, the position you have in the underlying asset defines which one of the following terms?

Accepted Answer

A) short hedge 
B) long hedge 
C) full hedge 
D) partial hedge 
E) underlying hedge 
A) short hedge 
B) long hedge 
C) full hedge 
D) partial hedge 
E) underlying hedge

Question 18

What is the price difference on a $100,000, 10-year Treasury note futures contract between the highest and lowest prices at which the bond traded on this day? Treasury note, $100,000, pts and one-half of 1/32 of a point.
$\begin{array}{ccccc}
\text { Contract } & \text { Open } & \text { High } & \text { Low } & \text { Close } \
\text { Jun, } 10 \mathrm{Yr} . \text { Treasury note } & 115^{\prime} 270 & 116^{\prime} 065 & 115^{\prime} 000 & 115^{\prime} 035
\end{array}$

Accepted Answer

A) $106.50 
B) $1,065.00 
C) $1,203.13 
D) $10,650.00 
E) $12,031.30 
A) $106.50 
B) $1,065.00 
C) $1,203.13 
D) $10,650.00 
E) $12,031.30

Question 19

When does the holder of a short position realize a profit?

Accepted Answer

A) when prices rise 
B) when prices either remain constant or rise 
C) when prices remain constant 
D) when prices either remain constant or decline 
E) when prices decline 
A) when prices rise 
B) when prices either remain constant or rise 
C) when prices remain constant 
D) when prices either remain constant or decline 
E) when prices decline

Question 20

Will purchased 3 futures contracts on corn. The contract size is 5,000 bushels and the price is quoted in cents per bushel. Assume the initial margin requirement is 4.5% of the contract value. What is the amount of the initial margin if the futures quote is 624?

Accepted Answer

A) $140.40 
B) $421.20 
C) $1,404 
D) $2,808 
E) $4,212 
A) $140.40 
B) $421.20 
C) $1,404 
D) $2,808 
E) $4,212

A farmer has a long position in barley and hedges it with a short position in wheat. Which one of the following terms applies to this situation?

Which one of the following statements is correct concerning an inverted futures market?

What is the normal means of delivery on a Treasury note futures contract?

A financial instrument on which a futures contract is based is called which one of the following?

A long hedge is the addition of which one of the following to a short position in the underlying asset?

What is the difference between this day's high and closing prices for one 10-year Treasury note futures contract? Treasury note, $100,000, pts and one-half of 1/32 of a point. Contract High Low Close Jun, 10. Treasury note 1125 1105 1080 1130

What price will be used for this day for the mark to market per pound on December cotton? Contract High Low Close Chg May, Coffee, 37,500 lbs., cents 138.00 135.50 137.15 2.20 per I b Dec, Cotton, 50,000 lbs., cents 80.59 78.85 80.63 .27 per I b

The spot price on cocoa is $3,840 a ton. The futures price is $3,450 a ton. The basis is and the market is a(n) market.

What is the price difference on a $100,000, 5-year Treasury note futures contract between the high and low prices? Treasury note, $100,000, pts and one-quarter of 1/32 of a point. Contract Oper High Low Clage Jun, 5 Yr. Treasury note 11067 11126 11175 11250

You own a portfolio which is valued at $10 million and has a beta of 1.5. You would like to create a riskless portfolio by hedging using S&P 500 futures contracts. The contract size is $250 times the index level. How many futures contracts do you need to acquire if the current S&P 500 index is 1500?

In 2007, the Chicago Mercantile Exchange merged with which one of the following exchanges?

Which one of the following statements related to futures contracts is correct?

A futures position that is equal, but opposite, the position you have in the underlying asset defines which one of the following terms?

What is the price difference on a $100,000, 10-year Treasury note futures contract between the highest and lowest prices at which the bond traded on this day? Treasury note, $100,000, pts and one-half of 1/32 of a point. Contract Open High Low Close Jun, 10. Treasury note 11270 11065 11000 11035

When does the holder of a short position realize a profit?

Will purchased 3 futures contracts on corn. The contract size is 5,000 bushels and the price is quoted in cents per bushel. Assume the initial margin requirement is 4.5% of the contract value. What is the amount of the initial margin if the futures quote is 624?

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

A farmer has a long position in barley and hedges it with a short position in wheat. Which one of the following terms applies to this situation?

Which one of the following statements is correct concerning an inverted futures market?

What is the normal means of delivery on a Treasury note futures contract?

A financial instrument on which a futures contract is based is called which one of the following?

A long hedge is the addition of which one of the following to a short position in the underlying asset?

What is the difference between this day's high and closing prices for one 10-year Treasury note futures contract? Treasury note, $100,000, pts and one-half of 1/32 of a point. Contract High Low Close Jun, 10. Treasury note 1125 1105 1080 1130

What price will be used for this day for the mark to market per pound on December cotton? Contract High Low Close Chg May, Coffee, 37,500 lbs., cents 138.00 135.50 137.15 2.20 per I b Dec, Cotton, 50,000 lbs., cents 80.59 78.85 80.63 .27 per I b

The spot price on cocoa is $3,840 a ton. The futures price is $3,450 a ton. The basis is ________ and the market is a(n)________ market.

What is the price difference on a $100,000, 5-year Treasury note futures contract between the high and low prices? Treasury note, $100,000, pts and one-quarter of 1/32 of a point. Contract Oper High Low Clage Jun, 5 Yr. Treasury note 11067 11126 11175 11250

In 2007, the Chicago Mercantile Exchange merged with which one of the following exchanges?

Which one of the following statements related to futures contracts is correct?

A futures position that is equal, but opposite, the position you have in the underlying asset defines which one of the following terms?

What is the price difference on a $100,000, 10-year Treasury note futures contract between the highest and lowest prices at which the bond traded on this day? Treasury note, $100,000, pts and one-half of 1/32 of a point. Contract Open High Low Close Jun, 10. Treasury note 11270 11065 11000 11035

When does the holder of a short position realize a profit?

Will purchased 3 futures contracts on corn. The contract size is 5,000 bushels and the price is quoted in cents per bushel. Assume the initial margin requirement is 4.5% of the contract value. What is the amount of the initial margin if the futures quote is 624?

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

The spot price on cocoa is $3,840 a ton. The futures price is $3,450 a ton. The basis is and the market is a(n) market.