Question 1

An investor planning to buy bonds in the future and wishing to lock in the current price using bond contracts should enter a:

Accepted Answer

A) long hedge. 
B) short hedge. 
C) basis hedge. 
D) margin hedge. 
A) long hedge. 
B) short hedge. 
C) basis hedge. 
D) margin hedge. A

Question 2

Compare the obligation entered into in a futures contract to the obligation in an options contract.

Accepted Answer

The buyer in an options contract has the choice of whether or not to exercise the contract.The seller of the option is obligated to deliver if the buyer chooses to exercise the option.Both the buyer and seller are obligated to take or make delivery in a futures contract.The obligation can be offset,however,by buying or selling an opposite contract.

Question 3

When trading futures,margin:

Accepted Answer

A) is seldom used. 
B) indicates that credit is being extended. 
C) serves as a down payment. 
D) in effect,is a performance bond. 
A) is seldom used. 
B) indicates that credit is being extended. 
C) serves as a down payment. 
D) in effect,is a performance bond. D

Question 4

What economic functions are fulfilled by futures?

Accepted Answer

Forward contracts have long allowed two

Question 5

Investors in futures can take either a long,short,or neutral position.

Accepted Answer

A) True 
 B)False

Question 6

As an economic function of futures markets,what does "price discovery" mean?

Accepted Answer

A) The futures price and spot price converge over time. 
B) The spot price is a discounted value of the futures price. 
C) The futures price provides information about the expected future spot price. 
D) In equilibrium,the spot price and futures price are equal. 
A) The futures price and spot price converge over time. 
B) The spot price is a discounted value of the futures price. 
C) The futures price provides information about the expected future spot price. 
D) In equilibrium,the spot price and futures price are equal.

Question 7

The initial margin requirement on an SSF contract is 50 percent.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements about the basis risk on futures is correct?

Accepted Answer

A) Basis risk is often completely eliminated by hedging. 
B) Although the basis fluctuates over time,it can be precisely predicted. 
C) The basis is approximately zero on the maturity date of the contract. 
D) A hedge will reduce risk as long as the basis does not fluctuate. 
A) Basis risk is often completely eliminated by hedging. 
B) Although the basis fluctuates over time,it can be precisely predicted. 
C) The basis is approximately zero on the maturity date of the contract. 
D) A hedge will reduce risk as long as the basis does not fluctuate.

Question 9

Do options on futures serve any economic purpose,or are they just sophisticated
games?

Accepted Answer

Options on futures transfer ri

Question 10

Explain the difference between a forward contract and a futures contract.

Accepted Answer

A forward contract is an individual agre

Question 11

An investor who sells a T-bond futures contract is expecting to profit from:

Accepted Answer

A) an increase in the price of the T-bond. 
B) an increase in the level of interest rates. 
C) interest rates remaining unchanged. 
D) the coupon payments from the T-bond. 
A) an increase in the price of the T-bond. 
B) an increase in the level of interest rates. 
C) interest rates remaining unchanged. 
D) the coupon payments from the T-bond.

Question 12

Futures contracts are regulated by the:

Accepted Answer

A) Securities Exchange Commission. 
B) National Association of Security Dealers. 
C) National Association of Commodity Dealers. 
D) Commodity Futures Trading Commission. 
A) Securities Exchange Commission. 
B) National Association of Security Dealers. 
C) National Association of Commodity Dealers. 
D) Commodity Futures Trading Commission.

Question 13

To protect the value of a bond portfolio against a rise in interest rates using bond futures contracts,the portfolio owner should execute a:

Accepted Answer

A) long hedge. 
B) duration hedge. 
C) short hedge. 
D) maturity hedge. 
A) long hedge. 
B) duration hedge. 
C) short hedge. 
D) maturity hedge.

Question 14

A forward contract differs from a futures contract in that:

Accepted Answer

A) a forward contract is for a shorter period of time. 
B) a forward contract does not specify the selling price. 
C) a forward contract is not standardized. 
D) a forward contract is non-binding. 
A) a forward contract is for a shorter period of time. 
B) a forward contract does not specify the selling price. 
C) a forward contract is not standardized. 
D) a forward contract is non-binding.

Question 15

Futures trade on the:

Accepted Answer

A) spot market. 
B) over-the-counter market. 
C) forward exchanges. 
D) futures exchanges. 
A) spot market. 
B) over-the-counter market. 
C) forward exchanges. 
D) futures exchanges.

Question 16

Most futures contracts are settled by delivery.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following represents the most popular stock-index futures position that is used to benefit from a stock market decline?

Accepted Answer

A) A short position in the S&P 500 contract 
B) A long position in the S&P 500 contract 
C) A short position in the DJIA contract 
D) A long position in the DJIA contract 
A) A short position in the S&P 500 contract 
B) A long position in the S&P 500 contract 
C) A short position in the DJIA contract 
D) A long position in the DJIA contract

Question 18

A pension fund holds $10 million in T-bonds.In order to protect against a rise in interest rate,the pension fund should use a short hedge in T-bond futures.

Accepted Answer

A) True 
 B)False

Question 19

The initial margin required for futures trading:

Accepted Answer

A) is only put up by the seller. 
B) is only put up by the buyer. 
C) is put up by the party initiating the transaction,either the buyer or the seller. 
D) must be put up by both the buyer and the seller. 
A) is only put up by the seller. 
B) is only put up by the buyer. 
C) is put up by the party initiating the transaction,either the buyer or the seller. 
D) must be put up by both the buyer and the seller.

Question 20

The intermarket spread is also known as a quality spread,involving two different markets,such as buying an NYSE contract and selling an S&P contract for the same month.

Accepted Answer

A) True 
 B)False

Exam 20: Futures

An investor planning to buy bonds in the future and wishing to lock in the current price using bond contracts should enter a:

Compare the obligation entered into in a futures contract to the obligation in an options contract.

When trading futures,margin:

What economic functions are fulfilled by futures?

Investors in futures can take either a long,short,or neutral position.

As an economic function of futures markets,what does "price discovery" mean?

The initial margin requirement on an SSF contract is 50 percent.

Which of the following statements about the basis risk on futures is correct?

Do options on futures serve any economic purpose,or are they just sophisticated games?

Explain the difference between a forward contract and a futures contract.

An investor who sells a T-bond futures contract is expecting to profit from:

Futures contracts are regulated by the:

To protect the value of a bond portfolio against a rise in interest rates using bond futures contracts,the portfolio owner should execute a:

A forward contract differs from a futures contract in that:

Futures trade on the:

Most futures contracts are settled by delivery.

Which of the following represents the most popular stock-index futures position that is used to benefit from a stock market decline?

A pension fund holds $10 million in T-bonds.In order to protect against a rise in interest rate,the pension fund should use a short hedge in T-bond futures.

The initial margin required for futures trading:

The intermarket spread is also known as a quality spread,involving two different markets,such as buying an NYSE contract and selling an S&P contract for the same month.

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Indirect Investing

Securities Markets and Market Indexes

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Common Stocks: Analysis and Strategy

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