Exam 13: Financial Futures Markets

Stock index futures cannot be closed out before the settlement date.

A bank has $500 million in long-term assets and $400 million in long-term fixed-rate liabilities. If interest rates rise, the bank's net exposure  will be ________, assuming that the long-term assets and liabilities are similarly affected. Therefore the bank should focus on hedging the net exposure amount by creating a ______.

Financial futures contracts on U.S. securities are commonly traded by non-U.S. financial institutions that maintain holdings of U.S. securities.

Assume that a futures contract on Treasury bonds with a face value of $100,000 is purchased at 93-00. If the same contract is later sold at 94-18, what is the gain, ignoring transaction costs?

An S&P 500 index futures contract is valued at $250 times its index level. Laura sells an S&P 500 futures contract with a September settlement date when the index is 2550. By the settlement date, the S&P 500 index falls to 2450. The profit (or loss)on Laura's position in the S&P 500 futures contract is

____ risk is the risk that the position being hedged by a futures contract is not affected in the same manner as the instrument underlying the futures contract.

Financial futures contracts on U.S. securities are ____ by non-U.S. financial institutions.

The value of an S&P 500 futures contract is $250 times the index. Assume the futures price on the S&P 500 index is 2400 at the time of purchase. If the index price is 2560 when the position is closed out, the gain is

The main role of a futures exchange is to initiate buy positions on any futures contracts that it believes will increase in value over time.

Currency futures may be purchased to hedge ____ or to capitalize on the expected ____ of that currency against the dollar.

Market participants who expect the stock market to perform poorly before the settlement date may consider selling S&P 500 index futures.

Assume a corporation is receiving a large amount of funds in the near future. The company plans to use the funds to purchase municipal bonds. Also assume that the company is concerned that interest rates will decrease before the purchase date, which would make the municipal bonds more expensive. In order to hedge against this possibility, the company should ____ MBI futures contracts. If interest rates decrease, the futures contract will generate a ____.

Stock index futures are commonly priced ____ than the stock index itself.

The earnings of a financial institution that hedges with interest rate futures are less sensitive to economic events than the earnings of an institution that does not hedge.

The net gain or loss on a futures contract for a stock index that is not closed out is the difference between the futures price when the initial position was created and the futures price at

Which of the following is NOT true regarding the futures exchanges?

Purchasers of financial futures contracts traded on an exchange know who the sellers are, and send a check directly to the seller at the time of the purchase.

Credit risk exists for futures contracts traded on exchanges, but it is normally not a concern for over-the-counter futures transactions.

The futures price is mainly a function of the prevailing price of the underlying security plus an expected adjustment in that price by the settlement date.

____ take positions in futures to reduce their exposure to future movements in interest rates or stock prices.