Question 1

All of the following are characteristics of the cash market except:

Accepted Answer

A) that the spot price represents the actual dollar value for the immediate transfer of a commodity. 
B) that there must be a transfer of the actual physical possession of the goods. 
C) that prices in the cash market are independent of prices in the futures market. 
D) All of the above are characteristics of the cash market 
A) that the spot price represents the actual dollar value for the immediate transfer of a commodity. 
B) that there must be a transfer of the actual physical possession of the goods. 
C) that prices in the cash market are independent of prices in the futures market. 
D) All of the above are characteristics of the cash market

Question 2

Margin requirements on commodities contracts:

Accepted Answer

A) are much higher than those on common stock transactions. 
B) vary over time, and even among exchanges, for a given commodity. 
C) typically are 2-10% of the value of the contract. 
D) None of the above are true 
A) are much higher than those on common stock transactions. 
B) vary over time, and even among exchanges, for a given commodity. 
C) typically are 2-10% of the value of the contract. 
D) None of the above are true

Question 3

The currency futures market is different than the other types of futures markets, because:

Accepted Answer

A) the contracts are standardized. 
B) the currency futures market provides a strong secondary market. 
C) the currency market has communication networks throughout the world, whereas the other ones do not. 
D) A and B 
A) the contracts are standardized. 
B) the currency futures market provides a strong secondary market. 
C) the currency market has communication networks throughout the world, whereas the other ones do not. 
D) A and B

Question 4

Assume you have purchased a contract for 25,000 British pounds for $35,000. Your margin requirement is $2,000. If the value of a pound increases .01, what is your percentage profit?

Accepted Answer

A) 10.0% 
B) 12.5% 
C) 15.0% 
D) 8.0% 
E) None of the above 
A) 10.0% 
B) 12.5% 
C) 15.0% 
D) 8.0% 
E) None of the above

Question 5

An example of an interest rate futures contract would be a Treasury bill future.

Accepted Answer

A) True 
 B)False

Question 6

If a financial manager wishes to protect against an interest rate drop, he can go long in the futures market.

Accepted Answer

A) True 
 B)False

Question 7

Hedging is the basic reason for the existence of the commodity exchanges.

Accepted Answer

A) True 
 B)False

Question 8

The futures markets were originally set up to allow livestock producers to speculate in their positions in a given commodity.

Accepted Answer

A) True 
 B)False

Question 9

Commodities can usually be purchased with a very small margin requirement.

Accepted Answer

A) True 
 B)False

Question 10

Cash prices and spot prices are very different in nature.

Accepted Answer

A) True 
 B)False

Question 11

A cross hedge uses the same form of security to hedge against potential rate changes, even though there may be different maturity dates in the securities.

Accepted Answer

A) True 
 B)False

Question 12

While hedging through interest rate futures reduces or eliminates the risk of loss, it also:

Accepted Answer

A) is illegal in some cases. 
B) has not been accepted by most corporate financial managers. 
C) eliminates the possibility of an abnormal gain. 
D) None of the above 
A) is illegal in some cases. 
B) has not been accepted by most corporate financial managers. 
C) eliminates the possibility of an abnormal gain. 
D) None of the above

Question 13

Given a 5,000 bushel futures contract on grain at a price of $3.25 per bushel, a margin requirement of 5%, and a maintenance margin of 80%, your customer wants to know (for a single contract) how much would the price per bushel have to fall before additional margin would be required?

Accepted Answer

$0.0325 per bushel
Explanation: Refer to

Question 14

Commodity exchanges do not limit maximum daily price movements.

Accepted Answer

A) True 
 B)False

Question 15

Initial margin requirements usually run 70-80% of the contract price.

Accepted Answer

A) True 
 B)False

Question 16

The difference between the cash market and the futures market is:

Accepted Answer

A) that commodity prices cannot be negotiated in the futures market, while they can be in the cash market. 
B) that larger margins are used in the cash market. 
C) that in the cash market, there must be a transfer of the physical possession of the goods. 
D) that the commodities are usually less expensive in the futures market. 
A) that commodity prices cannot be negotiated in the futures market, while they can be in the cash market. 
B) that larger margins are used in the cash market. 
C) that in the cash market, there must be a transfer of the physical possession of the goods. 
D) that the commodities are usually less expensive in the futures market.

Question 17

Commodity trading is based on the use of margin rather than actual cash dollars.

Accepted Answer

A) True 
 B)False

Question 18

Margin maintenance contracts normally represent what percent of the initial margin?

Accepted Answer

A) 2-10% 
B) 20-50% 
C) 60-80% 
D) 100% 
A) 2-10% 
B) 20-50% 
C) 60-80% 
D) 100%

Question 19

The financial futures market has evolved recently because of:

Accepted Answer

A) volatility and risk in the foreign exchange markets. 
B) the volatility of interest rates. 
C) appeal to speculators due to low margin requirements. 
D) All of the above 
A) volatility and risk in the foreign exchange markets. 
B) the volatility of interest rates. 
C) appeal to speculators due to low margin requirements. 
D) All of the above

Question 20

A hedger reduces risk of loss and enhances additional profit opportunities.

Accepted Answer

A) True 
 B)False

Exam 15: Commodities and Financial Futures

All of the following are characteristics of the cash market except:

Margin requirements on commodities contracts:

The currency futures market is different than the other types of futures markets, because:

Assume you have purchased a contract for 25,000 British pounds for $35,000. Your margin requirement is $2,000. If the value of a pound increases .01, what is your percentage profit?

An example of an interest rate futures contract would be a Treasury bill future.

If a financial manager wishes to protect against an interest rate drop, he can go long in the futures market.

Hedging is the basic reason for the existence of the commodity exchanges.

The futures markets were originally set up to allow livestock producers to speculate in their positions in a given commodity.

Commodities can usually be purchased with a very small margin requirement.

Cash prices and spot prices are very different in nature.

A cross hedge uses the same form of security to hedge against potential rate changes, even though there may be different maturity dates in the securities.

While hedging through interest rate futures reduces or eliminates the risk of loss, it also:

Given a 5,000 bushel futures contract on grain at a price of $3.25 per bushel, a margin requirement of 5%, and a maintenance margin of 80%, your customer wants to know (for a single contract) how much would the price per bushel have to fall before additional margin would be required?

Commodity exchanges do not limit maximum daily price movements.

Initial margin requirements usually run 70-80% of the contract price.

The difference between the cash market and the futures market is:

Commodity trading is based on the use of margin rather than actual cash dollars.

Margin maintenance contracts normally represent what percent of the initial margin?

The financial futures market has evolved recently because of:

A hedger reduces risk of loss and enhances additional profit opportunities.

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