Question 1

Most commodity futures contracts are closed out before the actual transaction is to take place.

Accepted Answer

A) True 
 B)False

Question 2

Margin requirements on commodities are much higher than those on common stock transactions.

Accepted Answer

A) True 
 B)False

Question 3

The New York Futures Exchange specializes in:

Accepted Answer

A) transactions involving companies listed on AMEX and NYSE. 
B) American-produced commodities. 
C) financial futures. 
D) grains and livestock. 
E) More than one of the above 
A) transactions involving companies listed on AMEX and NYSE. 
B) American-produced commodities. 
C) financial futures. 
D) grains and livestock. 
E) More than one of the above

Question 4

The margin requirement, relative to size, is less for financial futures than traditional commodities.

Accepted Answer

A) True 
 B)False

Question 5

Corporate financial managers use interest rate futures to reduce the risk of loss from a change in interest rates.

Accepted Answer

A) True 
 B)False

Question 6

An interest rate futures contract represents a bet or hedge on:

Accepted Answer

A) the direction of future interest rates. 
B) the direction of future bond prices. 
C) the expectation of future interest rates. 
D) All of the above 
A) the direction of future interest rates. 
B) the direction of future bond prices. 
C) the expectation of future interest rates. 
D) All of the above

Question 7

The difference between speculators and hedgers is that speculators are ______, while hedgers are _____.

Accepted Answer

A) risk-takers; risk-averters 
B) individual investors; financial managers 
C) short term; long-term 
D) None of the above 
A) risk-takers; risk-averters 
B) individual investors; financial managers 
C) short term; long-term 
D) None of the above

Question 8

The daily trading limits do not affect the efficiency of the market much because the commodity exchanges place very broad limitations on maximum daily price movements.

Accepted Answer

A) True 
 B)False

Question 9

There is no real difference in loss potential in the options and the commodities markets.

Accepted Answer

A) True 
 B)False

Question 10

A(n) ______ contract is an agreement which provides for the delivery of a given amount of something at a given time in the future, at a given price.

Accepted Answer

A) seasonal 
B) futures 
C) options 
D) None of the above 
A) seasonal 
B) futures 
C) options 
D) None of the above

Question 11

The basic premise behind interest rate swaps is that one party is able to trade one type of risk exposure for another.

Accepted Answer

A) True 
 B)False

Question 12

For a hedge to work, the futures contract must continue until actual delivery takes place.

Accepted Answer

A) True 
 B)False

Question 13

Trading in financial futures is similar to trading in commodities except for considerably higher margin requirements for financial futures.

Accepted Answer

A) True 
 B)False

Question 14

The commodity exchanges are primarily regulated by the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 15

The margin requirement on commodities futures is generally the same as or lower than financial futures.

Accepted Answer

A) True 
 B)False

Question 16

Hedging through futures contracts:

Accepted Answer

A) increases risk of loss if prices fall. 
B) eliminates profit maximization potential. 
C) is considered to be speculative in nature. 
D) All of the above 
A) increases risk of loss if prices fall. 
B) eliminates profit maximization potential. 
C) is considered to be speculative in nature. 
D) All of the above

Question 17

Which of the following statements about the margin requirements on commodities contracts is NOT true?

Accepted Answer

A) Use of margin is less common than trading with actual cash dollars 
B) They are generally much lower than those on stock transactions 
C) It is merely a good faith payment against losses 
D) All of the above are true 
A) Use of margin is less common than trading with actual cash dollars 
B) They are generally much lower than those on stock transactions 
C) It is merely a good faith payment against losses 
D) All of the above are true

Question 18

An investor controls contracts on five 5,000 bushel futures contracts on grain, at a price of $3 per bushel. The margin requirement is 5%, and the maintenance margin is 80%. How much would the price per bushel have to change to provide a $750 profit?

Accepted Answer

$0.03
Explanation: Refer to th

Question 19

Given a 5,000 bushel futures contract on grain at a price of $2.75 per bushel, where the margin requirement is 5%, and the maintenance margin is 80%. What would the return on investment be if the price increases by $.08 per bushel?

Accepted Answer

58.18%
Explanation: Refer to t

Question 20

Commodity trading is based on the use of:

Accepted Answer

A) actual dollars. 
B) a margin. 
C) a hedge. 
D) fictitious money. 
A) actual dollars. 
B) a margin. 
C) a hedge. 
D) fictitious money.

Exam 15: Commodities and Financial Futures

Most commodity futures contracts are closed out before the actual transaction is to take place.

Margin requirements on commodities are much higher than those on common stock transactions.

The New York Futures Exchange specializes in:

The margin requirement, relative to size, is less for financial futures than traditional commodities.

Corporate financial managers use interest rate futures to reduce the risk of loss from a change in interest rates.

An interest rate futures contract represents a bet or hedge on:

The difference between speculators and hedgers is that speculators are ______, while hedgers are _____.

The daily trading limits do not affect the efficiency of the market much because the commodity exchanges place very broad limitations on maximum daily price movements.

There is no real difference in loss potential in the options and the commodities markets.

A(n) ______ contract is an agreement which provides for the delivery of a given amount of something at a given time in the future, at a given price.

The basic premise behind interest rate swaps is that one party is able to trade one type of risk exposure for another.

For a hedge to work, the futures contract must continue until actual delivery takes place.

Trading in financial futures is similar to trading in commodities except for considerably higher margin requirements for financial futures.

The commodity exchanges are primarily regulated by the Federal Reserve.

The margin requirement on commodities futures is generally the same as or lower than financial futures.

Hedging through futures contracts:

Which of the following statements about the margin requirements on commodities contracts is NOT true?

An investor controls contracts on five 5,000 bushel futures contracts on grain, at a price of $3 per bushel. The margin requirement is 5%, and the maintenance margin is 80%. How much would the price per bushel have to change to provide a $750 profit?

Given a 5,000 bushel futures contract on grain at a price of $2.75 per bushel, where the margin requirement is 5%, and the maintenance margin is 80%. What would the return on investment be if the price increases by $.08 per bushel?

Commodity trading is based on the use of:

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Put and Call Options

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

Filters

The difference between speculators and hedgers is that speculators are __, while hedgers are _.