Question 1

Futures contracts are regulated by

Accepted Answer

A)  the Commodity Futures Trading Corporation. 
B)  the Chicago Board of Trade. 
C)  the Chicago Mercantile Exchange. 
D)  the Federal Reserve. 
E)  the Securities and Exchange Commission. 
A)  the Commodity Futures Trading Corporation. 
B)  the Chicago Board of Trade. 
C)  the Chicago Mercantile Exchange. 
D)  the Federal Reserve. 
E)  the Securities and Exchange Commission.

Question 2

Trading in stock index futures

Accepted Answer

A)  now exceeds buying and selling of shares in most markets. 
B)  reduces transactions costs as compared to trading in stocks. 
C)  increases leverage as compared to trading in stocks. 
D)  generally results in faster execution than trading in stocks. 
E)  all of these. 
A)  now exceeds buying and selling of shares in most markets. 
B)  reduces transactions costs as compared to trading in stocks. 
C)  increases leverage as compared to trading in stocks. 
D)  generally results in faster execution than trading in stocks. 
E)  all of these.

Question 3

Futures contracts __________ traded on an organized exchange,and forward contracts __________ traded on an organized exchange.

Accepted Answer

A)  are not;are 
B)  are;are 
C)  are not;are not 
D)  are;are not 
E)  are;may or may not be 
A)  are not;are 
B)  are;are 
C)  are not;are not 
D)  are;are not 
E)  are;may or may not be

Question 4

On January 1,you sold one April S&P/TSX 60 index futures contract at a futures price of 840.If on February 1 the April futures price is 850,what would be your profit (loss)if you closed your position (without considering transactions costs)?

Accepted Answer

A)  $2,000 loss 
B)  $10 loss 
C)  $2,000 profit 
D)  $10 profit 
E)  none of these 
A)  $2,000 loss 
B)  $10 loss 
C)  $2,000 profit 
D)  $10 profit 
E)  none of these

Question 5

A trader who has a __________ position in gold futures wants the price of gold to __________ in the future.

Accepted Answer

A)  long;decrease 
B)  short;decrease 
C)  short;stay the same 
D)  short;increase 
E)  long;stay the same 
A)  long;decrease 
B)  short;decrease 
C)  short;stay the same 
D)  short;increase 
E)  long;stay the same

Question 6

A futures contract

Accepted Answer

A)  is an agreement to buy or sell a specified amount of an asset at the spot price on the expiration date of the contract. 
B)  is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract. 
C)  gives the buyer the right,but not the obligation,to buy an asset some time in the future. 
D)  is a contract to be signed in the future by the buyer and the seller of the commodity. 
E)  none of these. 
A)  is an agreement to buy or sell a specified amount of an asset at the spot price on the expiration date of the contract. 
B)  is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract. 
C)  gives the buyer the right,but not the obligation,to buy an asset some time in the future. 
D)  is a contract to be signed in the future by the buyer and the seller of the commodity. 
E)  none of these.

Question 7

A swap

Accepted Answer

A)  obligates two counterparties to exchange cash flows at one or more future dates. 
B)  allow participants to restructure their balance sheets. 
C)  allows a firm to convert outstanding fixed rate debt to floating rate debt. 
D)  a and b. 
E)  a,b,and c. 
A)  obligates two counterparties to exchange cash flows at one or more future dates. 
B)  allow participants to restructure their balance sheets. 
C)  allows a firm to convert outstanding fixed rate debt to floating rate debt. 
D)  a and b. 
E)  a,b,and c.

Question 8

Modest and Sundaresan (1983)investigated futures prices and found

Accepted Answer

A)  deviations from theoretical prices did not occur. 
B)  deviations from theoretical prices were always less than transactions costs. 
C)  deviations from theoretical prices were large and potentially profitable. 
D)  deviations from theoretical prices were occasionally larger than transactions costs. 
E)  none of these. 
A)  deviations from theoretical prices did not occur. 
B)  deviations from theoretical prices were always less than transactions costs. 
C)  deviations from theoretical prices were large and potentially profitable. 
D)  deviations from theoretical prices were occasionally larger than transactions costs. 
E)  none of these.

Question 9

One reason swaps are desirable is that

Accepted Answer

A)  they are free of credit risk. 
B)  they have no transactions costs. 
C)  they increase interest rate volatility. 
D)  they increase interest rate risk. 
E)  they offer participants easy ways to restructure their balance sheets. 
A)  they are free of credit risk. 
B)  they have no transactions costs. 
C)  they increase interest rate volatility. 
D)  they increase interest rate risk. 
E)  they offer participants easy ways to restructure their balance sheets.

Question 10

You sold one soybean future contract at $5.13 per bushel.What would be your profit (loss)at maturity if the wheat spot price at that time were $5.26 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

A)  $65 profit 
B)  $650 profit 
C)  $650 loss 
D)  $65 loss 
E)  None of these is correct. 
A)  $65 profit 
B)  $650 profit 
C)  $650 loss 
D)  $65 loss 
E)  None of these is correct.

Question 11

Describe the types of traders that are active in the futures markets.Explain why each type is in the markets and how their goals differ.Give an example of how each might use the market.

Accepted Answer

The two types of traders are hedgers and

Question 12

Which one of the following stock index futures has a multiplier of 250?

Accepted Answer

A)  Russell 2000 
B)  S&P 500 Index 
C)  Nikkei 
D)  DAX-30 
E)  Nasdaq 100 
A)  Russell 2000 
B)  S&P 500 Index 
C)  Nikkei 
D)  DAX-30 
E)  Nasdaq 100

Question 13

Which one of the following statements is true?

Accepted Answer

A)  The maintenance margin is the amount of money you post with your broker when you buy or sell a futures contract. 
B)  The maintenance margin determines the value of the margin account below which the holder of a futures contract receives a margin call. 
C)  A margin deposit can only be met with cash. 
D)  All futures contracts require the same margin deposit. 
E)  The maintenance margin is set by the producer of the underlying asset. 
A)  The maintenance margin is the amount of money you post with your broker when you buy or sell a futures contract. 
B)  The maintenance margin determines the value of the margin account below which the holder of a futures contract receives a margin call. 
C)  A margin deposit can only be met with cash. 
D)  All futures contracts require the same margin deposit. 
E)  The maintenance margin is set by the producer of the underlying asset.

Question 14

The value of a futures contract for storable commodities can be determined by the _______ and the model __________ consistent with parity relationships.

Accepted Answer

A)  CAPM,will be 
B)  CAPM,will not be 
C)  APT,will not be 
D)  APT,will be 
E)  a and d 
A)  CAPM,will be 
B)  CAPM,will not be 
C)  APT,will not be 
D)  APT,will be 
E)  a and d

Question 15

Consider the following: $$\begin{array}{l}
\begin{array} { l  l r } 
\text {Risk-free rate in Canada }&0.04 \text { year } \
\text {Risk-free rate in Switzerland }&0.03 / \text { year } \
\text {Spot exchange rate }&1.67 \mathrm{SF} / \$
\end{array}
\end{array}$$
Assume the current market futures price is 1.66 SF/$.You borrow 167,000 SF and convert the proceeds to Canadian dollars and invest them in Canada at the risk-free rate.You simultaneously enter a contract to purchase 170,340 SF at the current futures prices (maturity of 1 year).What would be your profit (loss)?

Accepted Answer

A)  Profit of 630 SF 
B)  Loss of 2300 SF 
C)  Profit of 2300 SF 
D)  Loss of 630 SF 
E)  None of these 
A)  Profit of 630 SF 
B)  Loss of 2300 SF 
C)  Profit of 2300 SF 
D)  Loss of 630 SF 
E)  None of these

Question 16

Delivery of stock index futures

Accepted Answer

A)  is never made. 
B)  is made by a cash settlement based on the index value. 
C)  requires delivery of 1 share of each stock in the index. 
D)  is made by delivering 100 shares of each stock in the index. 
E)  is made by delivering a value-weighted basket of stocks. 
A)  is never made. 
B)  is made by a cash settlement based on the index value. 
C)  requires delivery of 1 share of each stock in the index. 
D)  is made by delivering 100 shares of each stock in the index. 
E)  is made by delivering a value-weighted basket of stocks.

Question 17

You purchased one corn future contract at $2.29 per bushel.What would be your profit (loss)at maturity if the corn spot price at that time were $2.10 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

A)  $950 profit 
B)  $95 profit 
C)  $950 loss 
D)  $95 loss 
E)  None of these is correct. 
A)  $950 profit 
B)  $95 profit 
C)  $950 loss 
D)  $95 loss 
E)  None of these is correct.

Question 18

A hedge ratio can be computed as ___________.

Accepted Answer

A)  profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate 
B)  the change in value of the unprotected position for a given change in the exchange rate divided by the profit derived from one futures position for the same exchange rate 
C)  profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate 
D)  the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate 
E)  None of these is correct 
A)  profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate 
B)  the change in value of the unprotected position for a given change in the exchange rate divided by the profit derived from one futures position for the same exchange rate 
C)  profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate 
D)  the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate 
E)  None of these is correct

Question 19

In a futures contract the futures price is

Accepted Answer

A)  determined by the buyer and the seller when the delivery of the commodity takes place. 
B)  determined by the futures exchange. 
C)  determined by the buyer and the seller when they initiate the contract. 
D)  determined independently by the provider of the underlying asset. 
E)  none of these. 
A)  determined by the buyer and the seller when the delivery of the commodity takes place. 
B)  determined by the futures exchange. 
C)  determined by the buyer and the seller when they initiate the contract. 
D)  determined independently by the provider of the underlying asset. 
E)  none of these.

Question 20

You hold one long corn futures contract that expires in April.To close your position in corn futures before the delivery date you must

Accepted Answer

A)  buy one May corn futures contract. 
B)  buy two April corn futures contract. 
C)  sell one April corn futures contract. 
D)  sell one May corn futures contract. 
E)  none of these. 
A)  buy one May corn futures contract. 
B)  buy two April corn futures contract. 
C)  sell one April corn futures contract. 
D)  sell one May corn futures contract. 
E)  none of these.

Exam 19: Globalization and International Investing

Futures contracts are regulated by

Trading in stock index futures

Futures contracts __________ traded on an organized exchange,and forward contracts __________ traded on an organized exchange.

On January 1,you sold one April S&P/TSX 60 index futures contract at a futures price of 840.If on February 1 the April futures price is 850,what would be your profit (loss)if you closed your position (without considering transactions costs)?

A trader who has a __________ position in gold futures wants the price of gold to __________ in the future.

A futures contract

A swap

Modest and Sundaresan (1983)investigated futures prices and found

One reason swaps are desirable is that

You sold one soybean future contract at $5.13 per bushel.What would be your profit (loss)at maturity if the wheat spot price at that time were $5.26 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

Describe the types of traders that are active in the futures markets.Explain why each type is in the markets and how their goals differ.Give an example of how each might use the market.

Which one of the following stock index futures has a multiplier of 250?

Which one of the following statements is true?

The value of a futures contract for storable commodities can be determined by the _______ and the model __________ consistent with parity relationships.

Delivery of stock index futures

You purchased one corn future contract at $2.29 per bushel.What would be your profit (loss)at maturity if the corn spot price at that time were $2.10 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

A hedge ratio can be computed as ___________.

In a futures contract the futures price is

You hold one long corn futures contract that expires in April.To close your position in corn futures before the delivery date you must

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

Futures contracts traded on an organized exchange,and forward contracts traded on an organized exchange.

A trader who has a position in gold futures wants the price of gold to in the future.

The value of a futures contract for storable commodities can be determined by the _ and the model ____ consistent with parity relationships.