Question 1

The spot price on cocoa is $3,540 a ton.The futures price is $3,480 a ton.The basis is ________ and the market is a(n)________ market.

Accepted Answer

A)  -60; carrying-charge 
B)  -60; inverted 
C)  20; inverted 
D)  60; carrying-charge 
E)  60; inverted 
A)  -60; carrying-charge 
B)  -60; inverted 
C)  20; inverted 
D)  60; carrying-charge 
E)  60; inverted

Question 2

In 2007,the Chicago Mercantile Exchange merged with which one of the following exchanges?

Accepted Answer

A)  Intercontinental Exchange 
B)  New York Board of Trade 
C)  Chicago Board of Trade 
D)  Coffee, Sugar, and Cocoa Exchange 
E)  New York Futures Exchange 
A)  Intercontinental Exchange 
B)  New York Board of Trade 
C)  Chicago Board of Trade 
D)  Coffee, Sugar, and Cocoa Exchange 
E)  New York Futures Exchange

Question 3

Julie purchased four (4)S&P 500 index futures at a price of 1392.The contract size is $250 times the index value.The futures are maturing today at a price of 1387.50.What is the amount of her profit or loss?

Accepted Answer

A)  -$3,125 
B)  -$4,500 
C)  -$5,625 
D)  -$13,575 
E)  -$15,625 
A)  -$3,125 
B)  -$4,500 
C)  -$5,625 
D)  -$13,575 
E)  -$15,625

Question 4

Which one of the following is the strategy of earning risk-free profits by taking advantage of any unusual differences between cash and futures prices?

Accepted Answer

A)  cash-futures arbitrage 
B)  mark-to-market 
C)  margin calling 
D)  basis recognition 
E)  cash spotting 
A)  cash-futures arbitrage 
B)  mark-to-market 
C)  margin calling 
D)  basis recognition 
E)  cash spotting

Question 5

What is the difference in the value of one November heating oil contract between this day's opening and closing prices?

Accepted Answer

A)  $59.40 
B)  $249.48 
C)  $2,494.80 
D)  $2,970.00 
E)  $5,940.00 
A)  $59.40 
B)  $249.48 
C)  $2,494.80 
D)  $2,970.00 
E)  $5,940.00

Question 6

A stock is currently selling for $38.50 a share and has a dividend yield of 1.75 percent.The risk-free rate is 3.5 percent.What is the 2-month futures price on this stock?

Accepted Answer

A)  $38.27 
B)  $38.41 
C)  $38.56 
D)  $38.61 
E)  $38.70 
A)  $38.27 
B)  $38.41 
C)  $38.56 
D)  $38.61 
E)  $38.70

Question 7

You purchased two futures contracts on soybeans at a price quote of 1344′0.The initial margin requirement is $4,750 per contract and the maintenance margin is $3,500 per contract.The contract quantity is 5,000 bushels and the price quote is in cents per bushel.What is the lowest the price quote can go before you receive a margin call?

Accepted Answer

A)  1314′0 
B)  1315′0 
C)  1319′0 
D)  1322′0 
E)  1325′0 
A)  1314′0 
B)  1315′0 
C)  1319′0 
D)  1322′0 
E)  1325′0

Question 8

Which of the following are needed to determine the number of stock index futures required to cross-hedge a stock portfolio?
I.standard deviation of the stock portfolio
II.beta of the stock portfolio
III.value of the index futures contract
IV.value of the stock portfolio

Accepted Answer

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

Question 9

The Country Farm and the Cereal Maker met today and agreed to exchange wheat six months from now at a price which they negotiated today.This agreement was made between the two firms and did not pass through an organized exchange.Which one of the following best describes this transaction?

Accepted Answer

A)  futures contract 
B)  spot market 
C)  cash market 
D)  forward contract 
E)  CME transaction 
A)  futures contract 
B)  spot market 
C)  cash market 
D)  forward contract 
E)  CME transaction

Question 10

Which one of the following is a difference between a forward contract and a futures contract?

Accepted Answer

A)  Forward contracts are based on commodities while futures contracts are based on financial instruments. 
B)  The price of the asset exchanged is determined when a forward contract is entered while the price is set on the exchange date for a futures contract. 
C)  A forward contract is a formal agreement while a futures contract is an informal agreement. 
D)  Futures contracts are managed through an organized exchange while forward contracts are not. 
E)  There are no differences between forward and futures contracts. 
A)  Forward contracts are based on commodities while futures contracts are based on financial instruments. 
B)  The price of the asset exchanged is determined when a forward contract is entered while the price is set on the exchange date for a futures contract. 
C)  A forward contract is a formal agreement while a futures contract is an informal agreement. 
D)  Futures contracts are managed through an organized exchange while forward contracts are not. 
E)  There are no differences between forward and futures contracts.

Question 11

How is a futures contract on the S&P 500 settled?

Accepted Answer

A)  cash 
B)  shares of stock selected by the contract buyer 
C)  shares of stock selected by the contract seller 
D)  shares of stock equivalent to those in the index 
E)  delivery of a Treasury bill equal in value to the settlement amount 
A)  cash 
B)  shares of stock selected by the contract buyer 
C)  shares of stock selected by the contract seller 
D)  shares of stock equivalent to those in the index 
E)  delivery of a Treasury bill equal in value to the settlement amount

Question 12

Which one of the following is the price of a commodity designated for delivery today?

Accepted Answer

A)  daily price 
B)  marked price 
C)  margin price 
D)  arbitrage price 
E)  cash price 
A)  daily price 
B)  marked price 
C)  margin price 
D)  arbitrage price 
E)  cash price

Question 13

What is the normal means of delivery on a Treasury note futures contract?

Accepted Answer

A)  delivery in cash 
B)  change in registered ownership 
C)  direct deposit of cash into the seller's bank account 
D)  wire transfer of funds from the buyer's bank to the seller's bank 
E)  payment by certified check on the maturity date 
A)  delivery in cash 
B)  change in registered ownership 
C)  direct deposit of cash into the seller's bank account 
D)  wire transfer of funds from the buyer's bank to the seller's bank 
E)  payment by certified check on the maturity date

Question 14

You own a 6-month futures contract on U.S.Treasury notes.The underlying notes have a duration of 3.87 years.What is the duration of the futures contract?

Accepted Answer

A)  3.37 years 
B)  3.67 years 
C)  3.87 years 
D)  4.12 years 
E)  4.37 years 
A)  3.37 years 
B)  3.67 years 
C)  3.87 years 
D)  4.12 years 
E)  4.37 years

Question 15

You purchased five September wheat futures contracts at the open today and sold those contracts at the close.What is your total profit or loss on these contracts?

Accepted Answer

A)  -$750,000 
B)  -$75,000 
C)  -$7,500 
D)  -$750 
E)  -$75 
A)  -$750,000 
B)  -$75,000 
C)  -$7,500 
D)  -$750 
E)  -$75

Question 16

Assume the futures price of a commodity is equal to the future value of the cash price,calculated at the risk-free rate.Given this,which one of the following terms applies to the market for this commodity?

Accepted Answer

A)  positive basis equilibrium 
B)  humped market 
C)  inverted market 
D)  time equilibrium 
E)  spot-futures parity 
A)  positive basis equilibrium 
B)  humped market 
C)  inverted market 
D)  time equilibrium 
E)  spot-futures parity

Question 17

Corn is currently selling for $6.15 a bushel while the 3-month futures price is $6.20.Carl believes that corn will actually sell for $6.45 a bushel 3 months from now.Which one of the following positions in corn should he take today,given this belief?

Accepted Answer

A)  sell in the spot market 
B)  sell in the futures market 
C)  take a long position in the futures market 
D)  take a short position in the futures market 
E)  take a short position in the spot market 
A)  sell in the spot market 
B)  sell in the futures market 
C)  take a long position in the futures market 
D)  take a short position in the futures market 
E)  take a short position in the spot market

Question 18

Which one of the following statements is correct concerning an inverted futures market?

Accepted Answer

A)  The basis will be negative. 
B)  The basis will equal zero. 
C)  The cash price will equal the futures price. 
D)  The cash price will exceed the futures price. 
E)  Arbitrage opportunities must exist. 
A)  The basis will be negative. 
B)  The basis will equal zero. 
C)  The cash price will equal the futures price. 
D)  The cash price will exceed the futures price. 
E)  Arbitrage opportunities must exist.

Question 19

Which one of the following is a notification to a futures contract holder that additional margin funds are needed?

Accepted Answer

A)  marking-to-market 
B)  deposit call 
C)  shortage notice 
D)  margin call 
E)  marking call 
A)  marking-to-market 
B)  deposit call 
C)  shortage notice 
D)  margin call 
E)  marking call

Question 20

Which of the following are reasons why commodities may have a negative basis?
I.storage costs
II.seasonal price fluctuations
III.transportation costs
IV.interest costs

Accepted Answer

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

The spot price on cocoa is $3,540 a ton.The futures price is $3,480 a ton.The basis is and the market is a(n) market.

In 2007,the Chicago Mercantile Exchange merged with which one of the following exchanges?

Julie purchased four (4)S&P 500 index futures at a price of 1392.The contract size is $250 times the index value.The futures are maturing today at a price of 1387.50.What is the amount of her profit or loss?

Which one of the following is the strategy of earning risk-free profits by taking advantage of any unusual differences between cash and futures prices?

What is the difference in the value of one November heating oil contract between this day's opening and closing prices?

A stock is currently selling for $38.50 a share and has a dividend yield of 1.75 percent.The risk-free rate is 3.5 percent.What is the 2-month futures price on this stock?

Which of the following are needed to determine the number of stock index futures required to cross-hedge a stock portfolio? I.standard deviation of the stock portfolio II.beta of the stock portfolio III.value of the index futures contract IV.value of the stock portfolio

The Country Farm and the Cereal Maker met today and agreed to exchange wheat six months from now at a price which they negotiated today.This agreement was made between the two firms and did not pass through an organized exchange.Which one of the following best describes this transaction?

Which one of the following is a difference between a forward contract and a futures contract?

How is a futures contract on the S&P 500 settled?

Which one of the following is the price of a commodity designated for delivery today?

What is the normal means of delivery on a Treasury note futures contract?

You own a 6-month futures contract on U.S.Treasury notes.The underlying notes have a duration of 3.87 years.What is the duration of the futures contract?

You purchased five September wheat futures contracts at the open today and sold those contracts at the close.What is your total profit or loss on these contracts?

Assume the futures price of a commodity is equal to the future value of the cash price,calculated at the risk-free rate.Given this,which one of the following terms applies to the market for this commodity?

Corn is currently selling for $6.15 a bushel while the 3-month futures price is $6.20.Carl believes that corn will actually sell for $6.45 a bushel 3 months from now.Which one of the following positions in corn should he take today,given this belief?

Which one of the following statements is correct concerning an inverted futures market?

Which one of the following is a notification to a futures contract holder that additional margin funds are needed?

Which of the following are reasons why commodities may have a negative basis? I.storage costs II.seasonal price fluctuations III.transportation costs IV.interest costs

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 14: Futures Contracts

The spot price on cocoa is $3,540 a ton.The futures price is $3,480 a ton.The basis is ________ and the market is a(n)________ market.

In 2007,the Chicago Mercantile Exchange merged with which one of the following exchanges?

Julie purchased four (4)S&P 500 index futures at a price of 1392.The contract size is $250 times the index value.The futures are maturing today at a price of 1387.50.What is the amount of her profit or loss?

Which one of the following is the strategy of earning risk-free profits by taking advantage of any unusual differences between cash and futures prices?

What is the difference in the value of one November heating oil contract between this day's opening and closing prices?

A stock is currently selling for $38.50 a share and has a dividend yield of 1.75 percent.The risk-free rate is 3.5 percent.What is the 2-month futures price on this stock?

Which of the following are needed to determine the number of stock index futures required to cross-hedge a stock portfolio? I.standard deviation of the stock portfolio II.beta of the stock portfolio III.value of the index futures contract IV.value of the stock portfolio

The Country Farm and the Cereal Maker met today and agreed to exchange wheat six months from now at a price which they negotiated today.This agreement was made between the two firms and did not pass through an organized exchange.Which one of the following best describes this transaction?

Which one of the following is a difference between a forward contract and a futures contract?

How is a futures contract on the S&P 500 settled?

Which one of the following is the price of a commodity designated for delivery today?

What is the normal means of delivery on a Treasury note futures contract?

You own a 6-month futures contract on U.S.Treasury notes.The underlying notes have a duration of 3.87 years.What is the duration of the futures contract?

You purchased five September wheat futures contracts at the open today and sold those contracts at the close.What is your total profit or loss on these contracts?

Assume the futures price of a commodity is equal to the future value of the cash price,calculated at the risk-free rate.Given this,which one of the following terms applies to the market for this commodity?

Corn is currently selling for $6.15 a bushel while the 3-month futures price is $6.20.Carl believes that corn will actually sell for $6.45 a bushel 3 months from now.Which one of the following positions in corn should he take today,given this belief?

Which one of the following statements is correct concerning an inverted futures market?

Which one of the following is a notification to a futures contract holder that additional margin funds are needed?

Which of the following are reasons why commodities may have a negative basis? I.storage costs II.seasonal price fluctuations III.transportation costs IV.interest costs

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

The spot price on cocoa is $3,540 a ton.The futures price is $3,480 a ton.The basis is and the market is a(n) market.