Exam 17: Futures Contracts

You are the financial manager of a company that plans to issue long-term bonds in 6 months' time.However,you are worried that interest rates may rise before then.How would you use financial futures to protect against a rise in interest rates?

Which of the following is not a major function of the clearing house:

Individuals and companies who enter into contracts in order to reduce risk are known as:

Calculate the price of a 10-year bond that has five years to maturity,with face value of $100 000,and coupon interest rate of 8.9% p.a.paid semi-annually,if the required rate of return is 9.9% p.a.(simple interest).

The process of adjusting traders account balances to reflect changes in market prices is known as:

If an individual who has entered a futures contract to buy one ounce of gold for $553 decides to reverse their position when the futures price is $555,they will:

How can a hedging strategy lead to losses?

A futures contract can be differentiated from a forward contract in that a futures contract:

The prime function of a futures clearinghouse is to:

The spot price of a commodity is:

Basis risk occurs when the spot and futures prices do not move in perfect unison.

The financial controller of Nointerest Ltd has planned that the company borrow using a 90-day bank bill facility with face value of $500 000 in four weeks.Interest rates on 90-day bank bills are currently 12% p.a.As a protection against possible interest rate increases,she has entered into a futures contract by selling one bank bill futures contract at a price of $88.50.After the four-week period,she reverses the futures position at $86.50 and issues a bank bill at a rate of 14% p.a.Calculate the gain/loss made on the futures contract.

A hedger is an individual or company who enters into financial contracts in order to profit from correctly anticipating price movements.

Many companies prefer forward rate agreements (FRAs)to futures contracts as:

The face value of a 90-day bank bill is $ _______________.(Enter numbers only,no spaces or thousands separators. )

A farmer plans to sell 800 bales of greasy wool (21 micron)in four weeks time.The current spot price is 1300 for a contract of 20 bales and the eight week futures price is 1320 (20 bales per contract).If the farmer hedges how many futures contracts should be purchased?

A futures contract can be defined as:

If someone enters into a contract with the intention of taking delivery of a commodity set out in the contract for a price that was determined before delivery,they are likely to be:

It is expected that the price of a futures contract with a term to maturity of zero be:

The time period during which a scalper holds a futures contract is usually measured in: