Question 1

Which of the following statements about futures contracts is correct?

Accepted Answer

A)  Most futures contracts are held to maturity. 
B)  Future contract holders will either buy or sell an opposite contract on or before expiry date to close-out the contract. 
C)  The majority of commodity futures are held to maturity. 
D)  Financial futures contracts are delivered at maturity whereas all commodity futures are closed-out. 
A)  Most futures contracts are held to maturity. 
B)  Future contract holders will either buy or sell an opposite contract on or before expiry date to close-out the contract. 
C)  The majority of commodity futures are held to maturity. 
D)  Financial futures contracts are delivered at maturity whereas all commodity futures are closed-out.

Question 2

If an investor buys a three-year Commonwealth Treasury bond futures contract at 7 per cent and on the delivery date the interest rate of Treasury bonds is lower than they expected at 6 per cent,they will have:

Accepted Answer

A)  gained money on their long position. 
B)  lost money on their long position. 
C)  lost money on their short position. 
D)  gained money on their short position. 
A)  gained money on their long position. 
B)  lost money on their long position. 
C)  lost money on their short position. 
D)  gained money on their short position.

Question 3

A futures contract can be defined as a contract which provides something to be bought or sold at a future date at a price decided upon at the expiry of the contract.

Accepted Answer

A) True 
 B)False

Question 4

The process of marking to market is when the clearing house demands funds from every futures trader that incurs a loss.

Accepted Answer

A) True 
 B)False

Question 5

A key characteristic of forward contracts that recommends their use over futures contracts is:

Accepted Answer

A)  forwards are not traded on exchanges and marked-to-market. 
B)  forward contracts allow flexibility with respect to contract period. 
C)  forwards are not standardised instruments with regard to the amount of each contract. 
D)  all of the given answers. 
A)  forwards are not traded on exchanges and marked-to-market. 
B)  forward contracts allow flexibility with respect to contract period. 
C)  forwards are not standardised instruments with regard to the amount of each contract. 
D)  all of the given answers.

Question 6

If a borrower has entered into a FRA and its interest cover is specified as 3Mv9M,this means:

Accepted Answer

A)  nine-month interest rates beginning in three months. 
B)  six-month interest rates beginning in three-months. 
C)  nine-month interest rates beginning in six months. 
D)  six-month interest rates beginning in six months. 
A)  nine-month interest rates beginning in three months. 
B)  six-month interest rates beginning in three-months. 
C)  nine-month interest rates beginning in six months. 
D)  six-month interest rates beginning in six months.

Question 7

As part of futures trading,exchanges have traders place an initial margin with its clearing house because:

Accepted Answer

A)  as the exchange has to cover its costs. 
B)  as it acts like a performance bond to support the value of the futures contract. 
C)  the exchange wants to ensure that brokers make profits. 
D)  the exchange wants to ensure that futures contracts can be closed-out. 
A)  as the exchange has to cover its costs. 
B)  as it acts like a performance bond to support the value of the futures contract. 
C)  the exchange wants to ensure that brokers make profits. 
D)  the exchange wants to ensure that futures contracts can be closed-out.

Question 8

An Australian importer with FX payable in 3 months can hedge and lock in the price of the required foreign currency by:

Accepted Answer

A)  buying AUD futures. 
B)  buying a currency swap. 
C)  selling AUD futures. 
D)  selling a currency swap. 
A)  buying AUD futures. 
B)  buying a currency swap. 
C)  selling AUD futures. 
D)  selling a currency swap.

Question 9

A wheat grower who wishes to protect his future wheat crop from price fluctuations can:

Accepted Answer

A)  take an arbitrage position on a wheat futures contract. 
B)  buy a wheat futures contract. 
C)  sell a wheat futures contract. 
D)  take a marked-to-market position on a wheat futures contract. 
A)  take an arbitrage position on a wheat futures contract. 
B)  buy a wheat futures contract. 
C)  sell a wheat futures contract. 
D)  take a marked-to-market position on a wheat futures contract.

Question 10

At the present time:

Accepted Answer

A)  open-outcry trading occurs for commodity futures contracts in Australia. 
B)  the convention for quoting the prices of futures contracts varies between exchanges around the world. 
C)  futures trading is permitted only for commodities. 
D)  futures trading is permitted only for financial instruments. 
A)  open-outcry trading occurs for commodity futures contracts in Australia. 
B)  the convention for quoting the prices of futures contracts varies between exchanges around the world. 
C)  futures trading is permitted only for commodities. 
D)  futures trading is permitted only for financial instruments.

Question 11

If you buy a bank-accepted futures contract and on delivery date the interest rate on bank-accepted bills is lower than you expected you will have gained money on your long position.

Accepted Answer

A) True 
 B)False

Question 12

The Chicago Board of trade (CBOT)established an organised market in grain futures contracts in:

Accepted Answer

A)  1794. 
B)  1848. 
C)  1894. 
D)  1904. 
A)  1794. 
B)  1848. 
C)  1894. 
D)  1904.

Question 13

Which of the following statements is a key difference between forwards and futures?

Accepted Answer

A)  Futures contracts are more expensive than forward contracts. 
B)  Forward contracts are offered only for foreign currencies. 
C)  Futures contracts are always delivered. 
D)  Forward contracts are not generally marked-to-market. 
A)  Futures contracts are more expensive than forward contracts. 
B)  Forward contracts are offered only for foreign currencies. 
C)  Futures contracts are always delivered. 
D)  Forward contracts are not generally marked-to-market.

Question 14

Which of the following statements is characteristic of futures trading on the Australian Futures Exchange (ASX Trade 24)?

Accepted Answer

A)  Pricing of bond contracts is on the basis of their yield to maturity. 
B)  Transactions in the 'trading pits' are conducted by 'open outcry'. 
C)  The ASX Trade 24 clearing house enforces full payment of the initial contract amount. 
D)  All of the given answers are correct. 
A)  Pricing of bond contracts is on the basis of their yield to maturity. 
B)  Transactions in the 'trading pits' are conducted by 'open outcry'. 
C)  The ASX Trade 24 clearing house enforces full payment of the initial contract amount. 
D)  All of the given answers are correct.

Question 15

Calculate the market value of a bank bill futures contract with a face value of $1 000 000,a reported price of $93.75 and 90 days to maturity.

Accepted Answer

A)  $866 468.84 
B)  $983 628.65 
C)  $984 822.93 
D)  $998 461.28 
A)  $866 468.84 
B)  $983 628.65 
C)  $984 822.93 
D)  $998 461.28

Question 16

A company has identified an exposure to movements in interest rates on its existing debt facilities.The company is considering selling futures contracts to manage that risk and is unsure which of the following contracts may NOT be used for managing interest rate risk exposures.

Accepted Answer

A)  90-day bank-accepted bills contract 
B)  S&P/ASX 200 Index 
C)  Three-year Commonwealth Treasury bond contract 
D)  Option on a 90-day bank-accepted bill futures contract 
A)  90-day bank-accepted bills contract 
B)  S&P/ASX 200 Index 
C)  Three-year Commonwealth Treasury bond contract 
D)  Option on a 90-day bank-accepted bill futures contract

Question 17

Explain simply what is meant by hedging and how the basic rule is implemented.

Accepted Answer

Hedging is a process whereby a risk mana

Question 18

Which of the following about futures contracts is incorrect?

Accepted Answer

A)  Futures contracts are exchange-traded financial instruments. 
B)  The futures exchanges offer standardised futures contracts. 
C)  The interest rate futures contracts, the FRA are traded on the larger exchanges. 
D)  The standard features of futures contracts include the underlying physical asset, the amount traded, how quoted and how the contracts is settled. 
A)  Futures contracts are exchange-traded financial instruments. 
B)  The futures exchanges offer standardised futures contracts. 
C)  The interest rate futures contracts, the FRA are traded on the larger exchanges. 
D)  The standard features of futures contracts include the underlying physical asset, the amount traded, how quoted and how the contracts is settled.

Question 19

In comparing forwards and futures,futures are typically:

Accepted Answer

A)  riskier than forwards. 
B)  more liquid than forwards. 
C)  traded on an organised exchange. 
D)  all of the given choices. 
A)  riskier than forwards. 
B)  more liquid than forwards. 
C)  traded on an organised exchange. 
D)  all of the given choices.

Question 20

Futures contracts _______ traded on a formal,organised exchange,and forward contracts _______ traded on a formal,organised exchange.

Accepted Answer

A)  are; are also 
B)  are not; are 
C)  are; are not 
D)  are; may be 
A)  are; are also 
B)  are not; are 
C)  are; are not 
D)  are; may be

Exam 19: Future Contracts and Forward Rate Agreements

Which of the following statements about futures contracts is correct?

If an investor buys a three-year Commonwealth Treasury bond futures contract at 7 per cent and on the delivery date the interest rate of Treasury bonds is lower than they expected at 6 per cent,they will have:

A futures contract can be defined as a contract which provides something to be bought or sold at a future date at a price decided upon at the expiry of the contract.

The process of marking to market is when the clearing house demands funds from every futures trader that incurs a loss.

A key characteristic of forward contracts that recommends their use over futures contracts is:

If a borrower has entered into a FRA and its interest cover is specified as 3Mv9M,this means:

As part of futures trading,exchanges have traders place an initial margin with its clearing house because:

An Australian importer with FX payable in 3 months can hedge and lock in the price of the required foreign currency by:

A wheat grower who wishes to protect his future wheat crop from price fluctuations can:

At the present time:

If you buy a bank-accepted futures contract and on delivery date the interest rate on bank-accepted bills is lower than you expected you will have gained money on your long position.

The Chicago Board of trade (CBOT)established an organised market in grain futures contracts in:

Which of the following statements is a key difference between forwards and futures?

Which of the following statements is characteristic of futures trading on the Australian Futures Exchange (ASX Trade 24)?

Calculate the market value of a bank bill futures contract with a face value of $1 000 000,a reported price of $93.75 and 90 days to maturity.

A company has identified an exposure to movements in interest rates on its existing debt facilities.The company is considering selling futures contracts to manage that risk and is unsure which of the following contracts may NOT be used for managing interest rate risk exposures.

Explain simply what is meant by hedging and how the basic rule is implemented.

Which of the following about futures contracts is incorrect?

In comparing forwards and futures,futures are typically:

Futures contracts _______ traded on a formal,organised exchange,and forward contracts _______ traded on a formal,organised exchange.

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

Futures contracts _ traded on a formal,organised exchange,and forward contracts _ traded on a formal,organised exchange.