Exam 13: Financial Futures Markets

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?

The value of an S&P 500 futures contract is $500 times the index. Assume the futures price on the S&P 500 index is 1612 at the time of purchase. If the index price is 1619 when the position isclosed out, the gain is

Laura sells an S&P 500 futures contract with a September settlement date when the index is 1750. By the settlement date, the S&P 500 index falls to 1400. The return on Laura's position in theS&P500 futures contract is ____ percent.

Which of the following statements is incorrect regarding single stock 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 cannot be closed out before the settlement date

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

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 threemonths. 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.

According to the text, using a futures contract on one financial instrument to hedge a position in a different financial instrument is known as

Since stock index futures prices are primarily driven by movements in the corresponding stock indexes, participants in stock index futures monitor indicators that may signal changes in the stockindexes.

Purchasers of financial futures contracts usually know who the sellers are, and vice versa.

Interest rate futures are not available on

A financial institution that hedges with interest rate futures is less sensitive to economic events than an institution that does not hedge.

The initial margin of a futures contract is typically between ____ percent of a futures contract's full value.

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

Companies with international trade can hedge ____ by ____ currency futures.

Financial futures contracts are rarely sold over the counter.

The use of financial leverage

Which of the following statements is incorrect with respect to cross-hedging?