Exam 13: Financial Futures Markets

Assume that a stock mutual fund uses stock index futures as it conducts dynamic asset allocation. This means that the mutual fund

Which of the following is  NOT a type of risk associated with futures contracts?

Which of the following statements is incorrect regarding single stock futures?

Some specialized futures contracts are sold over the counter, whereas standardized financial futures contracts are traded on exchanges.

The price of stock index futures may reflect investor expectations about the market more rapidly than stock prices.

According to the text, using a futures contract on one financial instrument to hedge securities not identical to the instrument represented by the futures contract is known as _______ hedging.

If a financial institution expects that the market value of its municipal bonds will decline because of economic conditions, it could hedge its position by ____ futures contracts on ____.

A financial institution that maintains some Treasury bond holdings sells Treasury bond futures contracts. If interest rates increase, the market value of the bond holdings will ____, and the position in futures contracts will result in a ____.

Assume that speculators purchased a futures contract at the beginning of the year. If the price of the security represented by the futures contract ____ over the year, then these speculators would likely have purchased the futures contract for ____ than they can sell it for.

Financial futures contracts are normally sold on a futures exchange, not over the counter.

An unexpected ____ in the consumer price index tends to create expectations of ____ interest rates and places ____ pressure on Treasury bond futures prices.

A bond index futures contract allows for the buying, but not the selling, of a bond index for a specified price at a specified date.

Brokers commonly require margin deposits from their customers above those required by the exchanges.

Clarke Company plans to satisfy cash needs in nine months by selling its Treasury bond holdings for $4 million. However, Clarke is concerned that interest rates might increase over the next three months. To hedge against this possibility, Clarke plans to sell Treasury bond futures. Thus, Clarke sells ____ futures contract for a price of 99-12. Assuming that the actual price of the futures contract declines to 97-20, Clarke would make a ____ of $____ from closing out the futures position.

The values of stock index futures contracts are insulated from market risk.

The cost of carry, or net financing cost, to the purchaser of stock index futures refers to the brokerage commissions paid to the broker as a result of the purchase.

Assume that corporate bond portfolio managers are concerned about the possibility of many bond defaults resulting from a future recession. A short position in Treasury bond futures ____ an effective hedge against the credit (default)risk. A short position in Treasury bill futures ____ an effective hedge against the credit (default)risk.

According to the text, when a financial institution sells futures contracts on debt securities in order to hedge against an increase in interest rates, this is referred to as

Trading restrictions imposed on specific stocks or stock indexes are referred to as

__________ occurs when a firm does not have adequate controls to monitor the employees responsible for its futures positions and those employees take more speculative positions than the firm desires.