Question 1

A collar

Accepted Answer

A)  combines interest rate caps and floors. 
B)  entails the purchase of a cap with one limit rate and the sale of a floor with a lower limit rate. 
C)  entails the sale of a cap with one limit rate and the purchase of a floor with a higher limit rate. 
D)  a and b. 
E)  a and c. 
A)  combines interest rate caps and floors. 
B)  entails the purchase of a cap with one limit rate and the sale of a floor with a lower limit rate. 
C)  entails the sale of a cap with one limit rate and the purchase of a floor with a higher limit rate. 
D)  a and b. 
E)  a and c.

Question 2

Consider the following: $$\begin{array}{l}
\begin{array} { l  l r } 
\text {Risk-free rate in Canada }&0.04 \text { year } \
\text {Risk-free rate in Switzerland }&0.03 / \text { year } \
\text {Spot exchange rate }&1.67 \mathrm{SF} / \$
\end{array}
\end{array}$$
If the market futures price is 1.69 SF/$,how could you arbitrage?

Accepted Answer

A)  Borrow Swiss Franks in Switzerland,convert them to dollars,lend the proceeds in Canada and enter futures positions to purchase Swiss Franks at the current futures price. 
B)  Borrow Canadian dollars in Canada,convert them to Swiss Franks,lend the proceeds in Switzerland and enter futures positions to sell Swiss Franks at the current futures price. 
C)  Borrow Canadian dollars in Canada and invest them in Canada and enter futures positions to purchase Swiss Franks at the current futures price. 
D)  Borrow Swiss Franks in Switzerland and invest them there,then convert back to Canadian dollars at the spot price. 
E)  There is no arbitrage opportunity. 
A)  Borrow Swiss Franks in Switzerland,convert them to dollars,lend the proceeds in Canada and enter futures positions to purchase Swiss Franks at the current futures price. 
B)  Borrow Canadian dollars in Canada,convert them to Swiss Franks,lend the proceeds in Switzerland and enter futures positions to sell Swiss Franks at the current futures price. 
C)  Borrow Canadian dollars in Canada and invest them in Canada and enter futures positions to purchase Swiss Franks at the current futures price. 
D)  Borrow Swiss Franks in Switzerland and invest them there,then convert back to Canadian dollars at the spot price. 
E)  There is no arbitrage opportunity.

Question 3

Taxation of futures trading gains and losses

Accepted Answer

A)  is based on cumulative year-end profits or losses. 
B)  occurs based on the date contracts are sold or closed. 
C)  can be timed to offset stock portfolio gains and losses. 
D)  is based on the contract holding period. 
E)  none of these. 
A)  is based on cumulative year-end profits or losses. 
B)  occurs based on the date contracts are sold or closed. 
C)  can be timed to offset stock portfolio gains and losses. 
D)  is based on the contract holding period. 
E)  none of these.

Question 4

Commodity futures pricing

Accepted Answer

A)  must be related to spot prices. 
B)  includes cost of carry. 
C)  converges to spot prices at maturity. 
D)  all of these are true. 
E)  none of these are true. 
A)  must be related to spot prices. 
B)  includes cost of carry. 
C)  converges to spot prices at maturity. 
D)  all of these are true. 
E)  none of these are true.

Question 5

Stoll and Whaley (1987,1991)concluded that expiration-day volatility was a result of program trades because

Accepted Answer

A)  volume in program trading has increased in recent years. 
B)  the implementation of the SuperDot system made program trading simpler. 
C)  large price swings tended to be reversed on the day following contract expiration. 
D)  all of these are true. 
E)  none of these are true. 
A)  volume in program trading has increased in recent years. 
B)  the implementation of the SuperDot system made program trading simpler. 
C)  large price swings tended to be reversed on the day following contract expiration. 
D)  all of these are true. 
E)  none of these are true.

Question 6

Some of the newer futures contracts include
I.fashion futures.
II.weather futures.
III.electricity futures.
IV.entertainment futures.

Accepted Answer

A)  I and II 
B)  II and III 
C)  III and IV 
D)  I,II,and III 
E)  I,III,and IV 
A)  I and II 
B)  II and III 
C)  III and IV 
D)  I,II,and III 
E)  I,III,and IV

Question 7

Contango

Accepted Answer

A)  holds that the natural hedgers are the purchasers of a commodity,not the suppliers. 
B)  is a hypothesis polar to backwardation. 
C)  holds that FO must be less than (PT). 
D)  a and c. 
E)  a and b. 
A)  holds that the natural hedgers are the purchasers of a commodity,not the suppliers. 
B)  is a hypothesis polar to backwardation. 
C)  holds that FO must be less than (PT). 
D)  a and c. 
E)  a and b.

Question 8

Which of the following is true about profits from futures contracts?

Accepted Answer

A)  The person with the long position gets to decide whether to exercise the futures contract and will only do so if there is a profit to be made. 
B)  It is possible for both the holder of the long position and the holder of the short position to earn a profit. 
C)  The clearinghouse makes most of the profit. 
D)  The amount that the holder of the long position gains must equal the amount that the holder of the short position loses. 
E)  Holders of short positions can recognize profits by making delivery early. 
A)  The person with the long position gets to decide whether to exercise the futures contract and will only do so if there is a profit to be made. 
B)  It is possible for both the holder of the long position and the holder of the short position to earn a profit. 
C)  The clearinghouse makes most of the profit. 
D)  The amount that the holder of the long position gains must equal the amount that the holder of the short position loses. 
E)  Holders of short positions can recognize profits by making delivery early.

Question 9

To hedge a long position in Treasury bonds,an investor most likely would

Accepted Answer

A)  buy interest rate futures. 
B)  sell S&P futures. 
C)  sell interest rate futures. 
D)  buy Treasury bonds in the spot market. 
E)  none of these. 
A)  buy interest rate futures. 
B)  sell S&P futures. 
C)  sell interest rate futures. 
D)  buy Treasury bonds in the spot market. 
E)  none of these.

Question 10

On April 1,you bought one S&P 500 index futures contract at a futures price of 950.If on June 15th the futures price were 1012,what would be your profit (loss)if you closed your position (without considering transactions costs)?

Accepted Answer

A)  $1,550 loss 
B)  $15,550 loss 
C)  $15,550 profit 
D)  $1,550 profit 
E)  None of these is correct 
A)  $1,550 loss 
B)  $15,550 loss 
C)  $15,550 profit 
D)  $1,550 profit 
E)  None of these is correct

Question 11

The buyer of a futures contract is said to have a __________ position and the seller of a futures contract is said to have a __________ position in futures.

Accepted Answer

A)  long;short 
B)  long;long 
C)  short;short 
D)  short;long 
E)  margined;long 
A)  long;short 
B)  long;long 
C)  short;short 
D)  short;long 
E)  margined;long

Question 12

A short hedge is

Accepted Answer

A)  a short position in the spot market and a simultaneous short position in the futures market. 
B)  a long position in the spot market and a simultaneous short position in the futures market. 
C)  a long position in the futures market and a simultaneous long position in the spot market. 
D)  a short position in the spot market and a simultaneous long position in the futures market. 
E)  none of these. 
A)  a short position in the spot market and a simultaneous short position in the futures market. 
B)  a long position in the spot market and a simultaneous short position in the futures market. 
C)  a long position in the futures market and a simultaneous long position in the spot market. 
D)  a short position in the spot market and a simultaneous long position in the futures market. 
E)  none of these.

Question 13

Hedging a position using futures on another commodity is called

Accepted Answer

A)  surrogate hedging. 
B)  cross hedging. 
C)  alternative hedging. 
D)  correlative hedging. 
E)  proxy hedging. 
A)  surrogate hedging. 
B)  cross hedging. 
C)  alternative hedging. 
D)  correlative hedging. 
E)  proxy hedging.

Question 14

You purchased the following futures contract today at the settlement price listed in the Wall Street Journal.Answer the questions below regarding the contract.

Accepted Answer

@#IMG-DLM& 
• What is the total value of the futur

Question 15

The terms of futures contracts __________ standardized,and the terms of forward contracts __________ standardized.

Accepted Answer

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

Question 16

Speculators may use futures markets rather than spot markets because

Accepted Answer

A)  transactions costs are lower in futures markets. 
B)  futures markets provide leverage. 
C)  spot markets are less efficient. 
D)  futures markets are less efficient. 
E)  both a and b are true. 
A)  transactions costs are lower in futures markets. 
B)  futures markets provide leverage. 
C)  spot markets are less efficient. 
D)  futures markets are less efficient. 
E)  both a and b are true.

Question 17

An increase in the basis will __________ a long hedger and __________ a short hedger.

Accepted Answer

A)  hurt;benefit 
B)  hurt;hurt 
C)  benefit;hurt 
D)  benefit;benefit 
E)  benefit;have no effect upon 
A)  hurt;benefit 
B)  hurt;hurt 
C)  benefit;hurt 
D)  benefit;benefit 
E)  benefit;have no effect upon

Question 18

Investors who take long positions in futures agree to __________ of the commodity on the delivery date,and those who take the short positions agree to __________ of the commodity.

Accepted Answer

A)  make delivery;take delivery 
B)  take delivery;make delivery 
C)  take delivery;take delivery 
D)  make delivery;pay the price 
E)  negotiate the price;pay the price 
A)  make delivery;take delivery 
B)  take delivery;make delivery 
C)  take delivery;take delivery 
D)  make delivery;pay the price 
E)  negotiate the price;pay the price

Question 19

The most recently established category of futures contracts is

Accepted Answer

A)  agricultural commodities. 
B)  metals and minerals. 
C)  foreign currencies. 
D)  financial futures. 
E)  both b and c. 
A)  agricultural commodities. 
B)  metals and minerals. 
C)  foreign currencies. 
D)  financial futures. 
E)  both b and c.

Question 20

You sold S&P 500 Index futures contract at a price of 950 and closed your position when the index futures was 947,you incurred:

Accepted Answer

A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of these is correct. 
A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of these is correct.

Exam 19: Globalization and International Investing

A collar

Consider the following: Risk-free rate in Canada 0.04 year Risk-free rate in Switzerland 0.03/ year Spot exchange rate 1.67/\ If the market futures price is 1.69 SF/$,how could you arbitrage?

Taxation of futures trading gains and losses

Commodity futures pricing

Stoll and Whaley (1987,1991)concluded that expiration-day volatility was a result of program trades because

Some of the newer futures contracts include I.fashion futures. II.weather futures. III.electricity futures. IV.entertainment futures.

Contango

Which of the following is true about profits from futures contracts?

To hedge a long position in Treasury bonds,an investor most likely would

On April 1,you bought one S&P 500 index futures contract at a futures price of 950.If on June 15th the futures price were 1012,what would be your profit (loss)if you closed your position (without considering transactions costs)?

The buyer of a futures contract is said to have a __________ position and the seller of a futures contract is said to have a __________ position in futures.

A short hedge is

Hedging a position using futures on another commodity is called

You purchased the following futures contract today at the settlement price listed in the Wall Street Journal.Answer the questions below regarding the contract.

The terms of futures contracts __________ standardized,and the terms of forward contracts __________ standardized.

Speculators may use futures markets rather than spot markets because

An increase in the basis will __________ a long hedger and __________ a short hedger.

Investors who take long positions in futures agree to __________ of the commodity on the delivery date,and those who take the short positions agree to __________ of the commodity.

The most recently established category of futures contracts is

You sold S&P 500 Index futures contract at a price of 950 and closed your position when the index futures was 947,you incurred:

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

On April 1,you bought one S&P 500 index futures contract at a futures price of 950.If on June 15^th the futures price were 1012,what would be your profit (loss)if you closed your position (without considering transactions costs)?

The buyer of a futures contract is said to have a position and the seller of a futures contract is said to have a position in futures.

The terms of futures contracts standardized,and the terms of forward contracts standardized.

An increase in the basis will a long hedger and a short hedger.

Investors who take long positions in futures agree to of the commodity on the delivery date,and those who take the short positions agree to of the commodity.