Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  receivables; appreciation 
B)  receivables; depreciation 
C)  payables; depreciation 
D)  payables; appreciation 
A)  receivables; appreciation 
B)  receivables; depreciation 
C)  payables; depreciation 
D)  payables; appreciation

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Bill Baher, a private investor, purchased a futures contract on Treasury bonds at a price of 102-12. Two months later, Baher sells the same futures contract in order to close out the position.Atthat time, the futures contract specifies 103-15. What is Baher's nominal profit? The par value of the futures contract is $100,000.

Accepted Answer

A)  $1,030.00; profit 
B)  $1,030.00; loss 
C)  $1,093.75; profit 
D)  $1,093.75; loss 
E)  none of the above 
A)  $1,030.00; profit 
B)  $1,030.00; loss 
C)  $1,093.75; profit 
D)  $1,093.75; loss 
E)  none of the above

Question 5

Which of the following is incorrect regarding organized exchanges trading financial futures contracts?

Accepted Answer

A)  Organized exchanges establish and enforce rules for the trading of financial futures contracts. 
B)  Organized exchanges ensure that the seller of the futures contract always delivers the securities covered by the contract, whether the contract was settled prior to the settlement date or not. 
C)  Organized exchanges clear, settle, and guarantee all transactions that occur on their exchanges. 
D)  The operations of financial futures exchanges are regulated by the Commodity Futures Trading Commission (CFT
C) . 
E)  All of the above are correct. 
A)  Organized exchanges establish and enforce rules for the trading of financial futures contracts. 
B)  Organized exchanges ensure that the seller of the futures contract always delivers the securities covered by the contract, whether the contract was settled prior to the settlement date or not. 
C)  Organized exchanges clear, settle, and guarantee all transactions that occur on their exchanges. 
D)  The operations of financial futures exchanges are regulated by the Commodity Futures Trading Commission (CFT
C) . 
E)  All of the above are correct.

Question 6

Systemic risk reflects the risk that a particular event could

Accepted Answer

A)  cause losses at a firm due to inadequate management control. 
B)  spread adverse effects among several firms or among financial markets. 
C)  cause a loss in value due to market conditions. 
D)  have a larger effect on the futures position than on the position being hedged. 
A)  cause losses at a firm due to inadequate management control. 
B)  spread adverse effects among several firms or among financial markets. 
C)  cause a loss in value due to market conditions. 
D)  have a larger effect on the futures position than on the position being hedged.

Question 7

In cross-hedging, if the value of the futures contract is more volatile than the portfolio's value, the amount of principal represented by the futures contracts will be ____ the market valueofthe portfolio to be hedged.

Accepted Answer

A)  smaller than 
B)  greater than 
C)  equal to 
D)  B and C are both possible 
A)  smaller than 
B)  greater than 
C)  equal to 
D)  B and C are both possible

Question 8

Speculators in futures contracts that normally maintain their futures positions for extended periods of time (such as weeks or months) are referred to as

Accepted Answer

A)  day traders. 
B)  hedgers. 
C)  closed-end traders. 
D)  position traders. 
A)  day traders. 
B)  hedgers. 
C)  closed-end traders. 
D)  position traders.

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  not allowed to be traded 
B)  are rarely desired 
C)  are commonly traded 
D)  A and B 
A)  not allowed to be traded 
B)  are rarely desired 
C)  are commonly traded 
D)  A and B

Question 11

____ is a standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date.

Accepted Answer

A)  option contract 
B)  brokerage contract 
C)  financial futures contract 
D)  margin call 
A)  option contract 
B)  brokerage contract 
C)  financial futures contract 
D)  margin call

Question 12

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

Accepted Answer

A)  increase; higher; downward 
B)  increase; lower; downward 
C)  increase; higher; upward 
D)  decrease; higher; downward 
E)  none of the above 
A)  increase; higher; downward 
B)  increase; lower; downward 
C)  increase; higher; upward 
D)  decrease; higher; downward 
E)  none of the above

Question 13

A financial institution that wishes to reduce its exposure to the possibility of declining interest rates might use:

Accepted Answer

A)  a long hedge. 
B)  a short hedge. 
C)  a day hedge. 
D)  index arbitrage. 
A)  a long hedge. 
B)  a short hedge. 
C)  a day hedge. 
D)  index arbitrage.

Question 14

Assume that a T-bill futures contract with a face value of $1 million is purchased at a price of $95.00 per $100 face value. At settlement, the price of T-bills is $95.50. What is the differencebetween the selling and purchase price of the futures contract?

Accepted Answer

A)  $.50 
B)  $50 
C)  $500 
D)  $5,000 
E)  none of the above 
A)  $.50 
B)  $50 
C)  $500 
D)  $5,000 
E)  none of the above

Question 15

Speculators who normally close out their futures positions on the same day that the positions were initiated are referred to as

Accepted Answer

A)  day traders. 
B)  hedgers. 
C)  closed-end traders. 
D)  position traders. 
A)  day traders. 
B)  hedgers. 
C)  closed-end traders. 
D)  position traders.

Question 16

_________ take positions in financial futures to reduce their exposure to future movements in interest rates or stock prices; ________ commonly take the opposite position and thus serve as counterparties on many transactions.

Accepted Answer

A)  Speculators; hedgers 
B)  Hedgers; speculators 
C)  Arbitrageurs; speculators 
D)  Hedgers; arbitrageurs 
A)  Speculators; hedgers 
B)  Hedgers; speculators 
C)  Arbitrageurs; speculators 
D)  Hedgers; arbitrageurs

Question 17

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

Accepted Answer

A)  the settlement date. 
B)  the date at which the futures price reaches its maximum. 
C)  the date at which the futures price reaches its minimum. 
D)  the date three months beyond the date when the initial position was taken. 
A)  the settlement date. 
B)  the date at which the futures price reaches its maximum. 
C)  the date at which the futures price reaches its minimum. 
D)  the date three months beyond the date when the initial position was taken.

Question 18

As applied to the futures markets, the basis is the

Accepted Answer

A)  difference between the price of a security and the price of a futures contract on the security. 
B)  gain or loss from hedging with futures contracts. 
C)  difference between a futures contract price and the initial deposit required. 
D)  price paid for a futures contract after accounting for transaction costs. 
E)  price paid for an option contract. 
A)  difference between the price of a security and the price of a futures contract on the security. 
B)  gain or loss from hedging with futures contracts. 
C)  difference between a futures contract price and the initial deposit required. 
D)  price paid for a futures contract after accounting for transaction costs. 
E)  price paid for an option contract.

Question 19

The value of a stock index futures contract has little correlation with the value of the underlying stock index.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  higher 
B)  lower 
C)  either higher or lower 
D)  none of the above 
A)  higher 
B)  lower 
C)  either higher or lower 
D)  none of the above

Exam 13: Financial Futures Markets

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

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

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

Which of the following is incorrect regarding organized exchanges trading financial futures contracts?

Systemic risk reflects the risk that a particular event could

In cross-hedging, if the value of the futures contract is more volatile than the portfolio's value, the amount of principal represented by the futures contracts will be ____ the market valueofthe portfolio to be hedged.

Speculators in futures contracts that normally maintain their futures positions for extended periods of time (such as weeks or months) are referred to as

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.

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

____ is a standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date.

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

A financial institution that wishes to reduce its exposure to the possibility of declining interest rates might use:

Assume that a T-bill futures contract with a face value of $1 million is purchased at a price of $95.00 per $100 face value. At settlement, the price of T-bills is $95.50. What is the differencebetween the selling and purchase price of the futures contract?

Speculators who normally close out their futures positions on the same day that the positions were initiated are referred to as

_________ take positions in financial futures to reduce their exposure to future movements in interest rates or stock prices; ________ commonly take the opposite position and thus serve as counterparties on many transactions.

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

As applied to the futures markets, the basis is the

The value of a stock index futures contract has little correlation with the value of the underlying stock index.

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

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance Operations

Pension Fund Operations

Filters

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

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

_ take positions in financial futures to reduce their exposure to future movements in interest rates or stock prices; commonly take the opposite position and thus serve as counterparties on many transactions.