Question 1

Basis risk refers to the risk:

Accepted Answer

A)  associated with anticipated price movements in the cash market. 
B)  associated with unanticipated price movements on the underlying asset. 
C)  of default on the futures contract. 
D)  from a change in the spread between the price on the commodity or financial security in the physical market and the price of the related futures contract. 
A)  associated with anticipated price movements in the cash market. 
B)  associated with unanticipated price movements on the underlying asset. 
C)  of default on the futures contract. 
D)  from a change in the spread between the price on the commodity or financial security in the physical market and the price of the related futures contract.

Question 2

When Australian financial futures still in existence at trading close are settled with the clearing house,final settlement in the form of standard delivery means:

Accepted Answer

A)  the contract is settled in cash. 
B)  the contract is settled by delivery of actual underlying financial asset. 
C)  the contract is closed out by delivery of the opposite contract. 
D)  the contract is settled by the sum of the initial margin and the variation margin. 
A)  the contract is settled in cash. 
B)  the contract is settled by delivery of actual underlying financial asset. 
C)  the contract is closed out by delivery of the opposite contract. 
D)  the contract is settled by the sum of the initial margin and the variation margin.

Question 3

Buying a futures contract for one delivery date and selling an identical futures contract with a different delivery date is called a:

Accepted Answer

A)  margin position. 
B)  spread position. 
C)  straddle. 
D)  speculative position. 
A)  margin position. 
B)  spread position. 
C)  straddle. 
D)  speculative position.

Question 4

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

Accepted Answer

A)  long; increase 
B)  long; fall 
C)  short; stay the same 
D)  short; rise 
A)  long; increase 
B)  long; fall 
C)  short; stay the same 
D)  short; rise

Question 5

Buying a September bank bill futures contract and simultaneously selling a June Commonwealth Treasury bond futures contract is a/an:

Accepted Answer

A)  typical trading strategy for a hedger. 
B)  typical trading strategy for an arbitrageur. 
C)  example of a spread. 
D)  example of a straddle. 
A)  typical trading strategy for a hedger. 
B)  typical trading strategy for an arbitrageur. 
C)  example of a spread. 
D)  example of a straddle.

Question 6

An investor holds a long oil futures contract that expires in June.To close out her position in oil futures before the delivery date,she must:

Accepted Answer

A)  buy one June oil futures contract. 
B)  buy two June oil futures contracts. 
C)  sell one June oil futures contract. 
D)  sell one July oil futures contract. 
A)  buy one June oil futures contract. 
B)  buy two June oil futures contracts. 
C)  sell one June oil futures contract. 
D)  sell one July oil futures contract.

Question 7

An Australian exporter with FX receivable 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 8

Which of the following about Australian Treasury bond futures is NOT correct?

Accepted Answer

A)  The Australian Treasury bond futures contract of 8 per cent is quoted as 92.0. 
B)  If a dealer buys a futures bond contract at 92.750 and sells at 93.500, she makes a profit. 
C)  If a dealer buys a futures contract at 7 per cent and sells at 8 per cent, he makes a profit. 
D)  Futures are quoted as index of 100 minus the yield so that the dealer can buy high and sell low. 
A)  The Australian Treasury bond futures contract of 8 per cent is quoted as 92.0. 
B)  If a dealer buys a futures bond contract at 92.750 and sells at 93.500, she makes a profit. 
C)  If a dealer buys a futures contract at 7 per cent and sells at 8 per cent, he makes a profit. 
D)  Futures are quoted as index of 100 minus the yield so that the dealer can buy high and sell low.

Question 9

In futures markets investors who expect to purchase future bonds may hedge against the effects of falling interest rates by:

Accepted Answer

A)  taking an arbitrage position on bond futures contracts. 
B)  buying bond futures contracts. 
C)  selling bond futures contracts. 
D)  buying and selling similar bond futures contracts. 
A)  taking an arbitrage position on bond futures contracts. 
B)  buying bond futures contracts. 
C)  selling bond futures contracts. 
D)  buying and selling similar bond futures contracts.

Question 10

A company has entered into a forward rate agreement with a corporate borrower.The following terms and conditions apply to the contract:
Notional principal:$350 000
Contract rate:12.65% per annum
Reference rate:13.10% per annum
FRA period:180 days
Who will be responsible for payment of the settlement amount?

Accepted Answer

A)  The company 
B)  Neither party-no settlement amount is payable 
C)  The bank 
D)  The clearing house 
A)  The company 
B)  Neither party-no settlement amount is payable 
C)  The bank 
D)  The clearing house

Question 11

Which of the following statements about futures is correct?

Accepted Answer

A)  Most futures contracts result in delivery. 
B)  Only a small percentage of financial futures contracts results in actual delivery. 
C)  Only a quarter of financial futures contracts results in actual delivery. 
D)  Financial futures contracts never result in actual delivery. 
A)  Most futures contracts result in delivery. 
B)  Only a small percentage of financial futures contracts results in actual delivery. 
C)  Only a quarter of financial futures contracts results in actual delivery. 
D)  Financial futures contracts never result in actual delivery.

Question 12

A futures exchange imposes an initial margin:

Accepted Answer

A)  as the exchange needs to make a profit. 
B)  as it gives the client trader more leverage. 
C)  to ensure brokers and traders are able to pay for any losses incurred over the life of the futures contract. 
D)  the exchange wants to ensure that futures contracts are closed-out. 
A)  as the exchange needs to make a profit. 
B)  as it gives the client trader more leverage. 
C)  to ensure brokers and traders are able to pay for any losses incurred over the life of the futures contract. 
D)  the exchange wants to ensure that futures contracts are closed-out.

Question 13

In the futures markets,speculators who strongly believe that prices of treasury bonds will fall are likely to:

Accepted Answer

A)  buy futures contracts on Treasury bonds. 
B)  sell futures contracts on Treasury bonds. 
C)  sell Treasury bonds on the spot market. 
D)  decrease the amount of money that they currently lend. 
A)  buy futures contracts on Treasury bonds. 
B)  sell futures contracts on Treasury bonds. 
C)  sell Treasury bonds on the spot market. 
D)  decrease the amount of money that they currently lend.

Question 14

A steel manufacturing company that expects a future iron price rise can hedge and take a/an:

Accepted Answer

A)  arbitrage position on iron futures contracts. 
B)  long position on iron futures contracts. 
C)  short position on iron futures contracts. 
D)  marked-to-market position on iron futures contracts. 
A)  arbitrage position on iron futures contracts. 
B)  long position on iron futures contracts. 
C)  short position on iron futures contracts. 
D)  marked-to-market position on iron futures contracts.

Question 15

In the futures markets,speculators who strongly believe that interest rates will rise are likely to:

Accepted Answer

A)  buy futures contracts on Treasury bonds. 
B)  sell futures contracts on Treasury bonds. 
C)  buy Treasury bonds on the spot market. 
D)  increase the amount of money that they currently lend. 
A)  buy futures contracts on Treasury bonds. 
B)  sell futures contracts on Treasury bonds. 
C)  buy Treasury bonds on the spot market. 
D)  increase the amount of money that they currently lend.

Question 16

In the futures markets,hedgers are mainly interested in:

Accepted Answer

A)  attempting to make a profit by betting on expected price changes. 
B)  reducing their exposure to risk of price changes. 
C)  increasing market liquidity. 
D)  reducing the spread between the bid and ask prices on bonds. 
A)  attempting to make a profit by betting on expected price changes. 
B)  reducing their exposure to risk of price changes. 
C)  increasing market liquidity. 
D)  reducing the spread between the bid and ask prices on bonds.

Question 17

Any Australian Treasury bond futures contract for a yield of 7.50 per cent per annum is quoted on the futures exchange as:

Accepted Answer

A)  7.500 
B)  92.50 
C)  92.500 
D)  107.50 
A)  7.500 
B)  92.50 
C)  92.500 
D)  107.50

Question 18

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

Accepted Answer

A)  futures are traded on exchanges and marked-to-market. 
B)  futures contracts allow flexibility in delivery dates. 
C)  futures are traded in liquid markets and allow netting of positions. 
D)  all of the given answers. 
A)  futures are traded on exchanges and marked-to-market. 
B)  futures contracts allow flexibility in delivery dates. 
C)  futures are traded in liquid markets and allow netting of positions. 
D)  all of the given answers.

Question 19

In using futures contracts for hedging which of the following is an important consideration?

Accepted Answer

A)  The standard contract size 
B)  The margin payment 
C)  The basis risk 
D)  All of the given choices 
A)  The standard contract size 
B)  The margin payment 
C)  The basis risk 
D)  All of the given choices

Basis risk refers to the risk:

When Australian financial futures still in existence at trading close are settled with the clearing house,final settlement in the form of standard delivery means:

Buying a futures contract for one delivery date and selling an identical futures contract with a different delivery date is called a:

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

Buying a September bank bill futures contract and simultaneously selling a June Commonwealth Treasury bond futures contract is a/an:

An investor holds a long oil futures contract that expires in June.To close out her position in oil futures before the delivery date,she must:

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

Which of the following about Australian Treasury bond futures is NOT correct?

In futures markets investors who expect to purchase future bonds may hedge against the effects of falling interest rates by:

Which of the following statements about futures is correct?

A futures exchange imposes an initial margin:

In the futures markets,speculators who strongly believe that prices of treasury bonds will fall are likely to:

A steel manufacturing company that expects a future iron price rise can hedge and take a/an:

In the futures markets,speculators who strongly believe that interest rates will rise are likely to:

In the futures markets,hedgers are mainly interested in:

Any Australian Treasury bond futures contract for a yield of 7.50 per cent per annum is quoted on the futures exchange as:

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

In using futures contracts for hedging which of the following is an important consideration?

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

Exam 19: Future Contracts and Forward Rate Agreements

Basis risk refers to the risk:

When Australian financial futures still in existence at trading close are settled with the clearing house,final settlement in the form of standard delivery means:

Buying a futures contract for one delivery date and selling an identical futures contract with a different delivery date is called a:

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

Buying a September bank bill futures contract and simultaneously selling a June Commonwealth Treasury bond futures contract is a/an:

An investor holds a long oil futures contract that expires in June.To close out her position in oil futures before the delivery date,she must:

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

Which of the following about Australian Treasury bond futures is NOT correct?

In futures markets investors who expect to purchase future bonds may hedge against the effects of falling interest rates by:

Which of the following statements about futures is correct?

A futures exchange imposes an initial margin:

In the futures markets,speculators who strongly believe that prices of treasury bonds will fall are likely to:

A steel manufacturing company that expects a future iron price rise can hedge and take a/an:

In the futures markets,speculators who strongly believe that interest rates will rise are likely to:

In the futures markets,hedgers are mainly interested in:

Any Australian Treasury bond futures contract for a yield of 7.50 per cent per annum is quoted on the futures exchange as:

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

In using futures contracts for hedging which of the following is an important consideration?

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

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