Question 1

For many financial assets, it is in the ________ that it is easier and less costly to alter a portfolio position.

Accepted Answer

A)  noncash market. 
B)  stock market. 
C)  cash market. 
D)  futures market 
A)  noncash market. 
B)  stock market. 
C)  cash market. 
D)  futures market

Question 2

The futures price for the S&P 500 is 2000 and the multiple is $100. What is the dollar value of the stock index futures contract?

Accepted Answer

A)  $200 
B)  $20,000 
C)  $120,000 
D)  None of these 
A)  $200 
B)  $20,000 
C)  $120,000 
D)  None of these

Question 3

The Treasury bond and note futures contracts are unique in that the short is granted options as to which issue to deliver and during the delivery month when to deliver.

Accepted Answer

A) True 
 B)False

Question 4

What is the maintenance margin? What is the variation margin and how does it differ from the maintenance margin?

Accepted Answer

Maintenance margin is the minimum level

Question 5

In regards to a futures contract, which of the below statements is FALSE?

Accepted Answer

A)  When entering into a futures contract, the parties to the contract agree to buy or sell a specific amount of a specific item at a specified future date. 
B)  The price at which the parties agree to transact in the future is called the futures price. 
C)  The designated date at which the parties must transact is called the settlement date or delivery date. 
D)  When an investor takes a position in the market by buying a futures contract (or agreeing to buy at the future date), the investor is said to be in a short position or to be short futures. 
A)  When entering into a futures contract, the parties to the contract agree to buy or sell a specific amount of a specific item at a specified future date. 
B)  The price at which the parties agree to transact in the future is called the futures price. 
C)  The designated date at which the parties must transact is called the settlement date or delivery date. 
D)  When an investor takes a position in the market by buying a futures contract (or agreeing to buy at the future date), the investor is said to be in a short position or to be short futures.

Question 6

The General Accounting Office (GAO) study addresses the concerns of Congress and regulators regarding derivative products.

Accepted Answer

A) True 
 B)False

Question 7

One alternative in liquidating a futures contract position is to wait until the ________. At that time the party ________ a futures contract accepts delivery of the underlying; the party that ________ a futures contract liquidates the position by delivering the underlying at the agreed-upon price.

Accepted Answer

A)  settlement date; purchasing; sells 
B)  liquidation date; purchasing; sells 
C)  settlement date; selling; purchases 
D)  liquidation date; selling; purchases 
A)  settlement date; purchasing; sells 
B)  liquidation date; purchasing; sells 
C)  settlement date; selling; purchases 
D)  liquidation date; selling; purchases

Question 8

The basic economic function of futures markets is to provide a chance for market participants ________.

Accepted Answer

A)  to leverage their portfolios to take advantage of known opportunities. 
B)  to diversify their investment portfolios. 
C)  to hedge against the risk of adverse price movements. 
D)  to speculate on price movements so as to realize high returns. 
A)  to leverage their portfolios to take advantage of known opportunities. 
B)  to diversify their investment portfolios. 
C)  to hedge against the risk of adverse price movements. 
D)  to speculate on price movements so as to realize high returns.

Question 9

The futures price and the cash market price are tied together by the ________.

Accepted Answer

A)  expense of bearing. 
B)  cost of conveying. 
C)  cost of carry. 
D)  expense of bearing 
A)  expense of bearing. 
B)  cost of conveying. 
C)  cost of carry. 
D)  expense of bearing

Question 10

A stock index futures contract is one whose underlying asset is a fixed-income instrument or an interest rate.

Accepted Answer

A) True 
 B)False

Question 11

In regards to interest rate futures contracts, which of the below statements is FALSE?

Accepted Answer

A)  Interest rate futures contracts can be classified by the maturity of their underlying security. 
B)  Short-term interest rate futures contracts have an underlying security that matures in less than one year. 
C)  The maturity of the underlying security of long-term futures contracts exceeds one year. 
D)  A few of the major financial markets outside the United States have similar futures contracts in which the underlying security is a fixed-income security issued by the central government. 
A)  Interest rate futures contracts can be classified by the maturity of their underlying security. 
B)  Short-term interest rate futures contracts have an underlying security that matures in less than one year. 
C)  The maturity of the underlying security of long-term futures contracts exceeds one year. 
D)  A few of the major financial markets outside the United States have similar futures contracts in which the underlying security is a fixed-income security issued by the central government.

Question 12

________ are standardized agreements as to the delivery date (or month) and quality of the deliverable, and are traded on organized exchanges, while ________ is usually nonstandardized because the terms of each contract are negotiated individually between buyer and seller.

Accepted Answer

A)  Futures contracts; a forward contract 
B)  Standardized contracts; a nonstandarized contract 
C)  Futures contracts; a nonstandarized contract 
D)  Standardized contracts; a futures contract 
A)  Futures contracts; a forward contract 
B)  Standardized contracts; a nonstandarized contract 
C)  Futures contracts; a nonstandarized contract 
D)  Standardized contracts; a futures contract

Question 13

Which of the below statements is FALSE?

Accepted Answer

A)  While the degree of leverage available in the futures market varies from contract to contract, as the initial margin requirement varies, the leverage attainable is considerably greater than in the cash market. 
B)  Futures markets can be used to reduce price risk. 
C)  The exchange does not have the right to impose a limit on the daily price movement of a futures contract from the previous day's closing price. 
D)  The rationale offered for the imposition of daily price limits is that they provide stability to the market at times when new information may cause the futures price to exhibit extreme fluctuations. 
A)  While the degree of leverage available in the futures market varies from contract to contract, as the initial margin requirement varies, the leverage attainable is considerably greater than in the cash market. 
B)  Futures markets can be used to reduce price risk. 
C)  The exchange does not have the right to impose a limit on the daily price movement of a futures contract from the previous day's closing price. 
D)  The rationale offered for the imposition of daily price limits is that they provide stability to the market at times when new information may cause the futures price to exhibit extreme fluctuations.

Question 14

________ is an agreement between a buyer and a seller, in which the ________ agrees to take delivery of something at a specified price at the end of a designated period of time, and the ________ agrees to make delivery of something at a specified price at the end of a designated period of time.

Accepted Answer

A)  An option contract; seller; buyer 
B)  An option contract; buyer; seller 
C)  A futures contract; seller; buyer 
D)  A futures contract; buyer; seller 
A)  An option contract; seller; buyer 
B)  An option contract; buyer; seller 
C)  A futures contract; seller; buyer 
D)  A futures contract; buyer; seller

Question 15

Parties to a futures contract must satisfy margin requirements (initial, maintenance, and variation), and futures contracts are marked to market at the beginning of each trading day.

Accepted Answer

A) True 
 B)False

Question 16

In May 1994, the General Accounting Office (GAO) prepared a report on Financial Derivatives: Actions Needed to Protect the Financial System. The GAO study concluded that ________.

Accepted Answer

A)  boards of directors and senior management have secondary responsibility for managing derivative risks . 
B)  financial reporting requirements for derivative instruments are adequate and the Financial Accounting Standards Board should implement comprehensive accounting rules for derivative products. 
C)  improving regulations for derivatives in the United States without coordinating with foreign regulators will reduce the effectiveness of the regulations. 
D)  policymakers and regulators should block the use of derivatives. 
A)  boards of directors and senior management have secondary responsibility for managing derivative risks . 
B)  financial reporting requirements for derivative instruments are adequate and the Financial Accounting Standards Board should implement comprehensive accounting rules for derivative products. 
C)  improving regulations for derivatives in the United States without coordinating with foreign regulators will reduce the effectiveness of the regulations. 
D)  policymakers and regulators should block the use of derivatives.

Question 17

Without financial futures, investors would have only one trading location to alter portfolio positions when they get new information that is expected to influence the value of assets and that is the ________.

Accepted Answer

A)  commodity market. 
B)  derivatives market. 
C)  noncash market. 
D)  cash market. 
A)  commodity market. 
B)  derivatives market. 
C)  noncash market. 
D)  cash market.

Question 18

As the value of a futures contract is derived from the value of the underlying instrument, futures contracts are commonly called ________.

Accepted Answer

A)  option instruments. 
B)  forward instruments. 
C)  index instruments. 
D)  derivative instruments. 
A)  option instruments. 
B)  forward instruments. 
C)  index instruments. 
D)  derivative instruments.

Question 19

The listed interest rate futures contracts traded in the United States are the Eurodollar futures contract, the Treasury bill futures contract, the 30-day federal funds futures contract, and the Treasury bond and note futures contracts.

Accepted Answer

A) True 
 B)False

Question 20

Associated with most futures exchange is a clearinghouse, which provides a guarantee function.

Accepted Answer

A) True 
 B)False

Exam 26: Financial Futures Markets

For many financial assets, it is in the ________ that it is easier and less costly to alter a portfolio position.

The futures price for the S&P 500 is 2000 and the multiple is $100. What is the dollar value of the stock index futures contract?

The Treasury bond and note futures contracts are unique in that the short is granted options as to which issue to deliver and during the delivery month when to deliver.

What is the maintenance margin? What is the variation margin and how does it differ from the maintenance margin?

In regards to a futures contract, which of the below statements is FALSE?

The General Accounting Office (GAO) study addresses the concerns of Congress and regulators regarding derivative products.

One alternative in liquidating a futures contract position is to wait until the ________. At that time the party ________ a futures contract accepts delivery of the underlying; the party that ________ a futures contract liquidates the position by delivering the underlying at the agreed-upon price.

The basic economic function of futures markets is to provide a chance for market participants ________.

The futures price and the cash market price are tied together by the ________.

A stock index futures contract is one whose underlying asset is a fixed-income instrument or an interest rate.

In regards to interest rate futures contracts, which of the below statements is FALSE?

________ are standardized agreements as to the delivery date (or month) and quality of the deliverable, and are traded on organized exchanges, while ________ is usually nonstandardized because the terms of each contract are negotiated individually between buyer and seller.

Which of the below statements is FALSE?

________ is an agreement between a buyer and a seller, in which the ________ agrees to take delivery of something at a specified price at the end of a designated period of time, and the ________ agrees to make delivery of something at a specified price at the end of a designated period of time.

Parties to a futures contract must satisfy margin requirements (initial, maintenance, and variation), and futures contracts are marked to market at the beginning of each trading day.

In May 1994, the General Accounting Office (GAO) prepared a report on Financial Derivatives: Actions Needed to Protect the Financial System. The GAO study concluded that ________.

Without financial futures, investors would have only one trading location to alter portfolio positions when they get new information that is expected to influence the value of assets and that is the ________.

As the value of a futures contract is derived from the value of the underlying instrument, futures contracts are commonly called ________.

The listed interest rate futures contracts traded in the United States are the Eurodollar futures contract, the Treasury bill futures contract, the 30-day federal funds futures contract, and the Treasury bond and note futures contracts.

Associated with most futures exchange is a clearinghouse, which provides a guarantee function.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

One alternative in liquidating a futures contract position is to wait until the . At that time the party a futures contract accepts delivery of the underlying; the party that a futures contract liquidates the position by delivering the underlying at the agreed-upon price.

are standardized agreements as to the delivery date (or month) and quality of the deliverable, and are traded on organized exchanges, while is usually nonstandardized because the terms of each contract are negotiated individually between buyer and seller.

is an agreement between a buyer and a seller, in which the agrees to take delivery of something at a specified price at the end of a designated period of time, and the agrees to make delivery of something at a specified price at the end of a designated period of time.