Question 1

The primary participants in the commodities market include both the speculators and the hedgers.

Accepted Answer

A) True 
 B)False

Question 2

The use of financial futures will most likely increase as financial managers gain a greater understanding and appreciation of their uses.

Accepted Answer

A) True 
 B)False

Question 3

A speculator purchases a 37,000-pound contract for coffee for $1.08 per pound with an initial margin requirement of 7%. The price goes up to $1.13 in three months. What is the percentage of profit?

Accepted Answer

A) 252.8% 
B) 264.4% 
C) 51.2% 
D) 63.2% 
E) 66.1% 
A) 252.8% 
B) 264.4% 
C) 51.2% 
D) 63.2% 
E) 66.1%

Question 4

Prices in the cash market are somewhat dependent on prices in the futures market.

Accepted Answer

A) True 
 B)False

Question 5

Financial futures consist of:

Accepted Answer

A) gold and foreign currencies. 
B) foreign exchange and interest rate futures. 
C) corporate bonds and common stock. 
D) None of the above 
A) gold and foreign currencies. 
B) foreign exchange and interest rate futures. 
C) corporate bonds and common stock. 
D) None of the above

Question 6

A requirement of a futures contract is that the buyer takes possession on a given date.

Accepted Answer

A) True 
 B)False

Question 7

The high-risk, speculative nature of commodities futures is due primarily to:

Accepted Answer

A) the presence of hedgers in the markets. 
B) high leverage brought about by low margin requirements. 
C) Both A and B 
D) None of the above 
A) the presence of hedgers in the markets. 
B) high leverage brought about by low margin requirements. 
C) Both A and B 
D) None of the above

Question 8

The commodities exchanges are regulated primarily by the SEC.

Accepted Answer

A) True 
 B)False

Question 9

Corn futures are traded on the:

Accepted Answer

A) New York Futures Exchange. 
B) Chicago Board of Trade. 
C) International Money Market of the CME. 
D) All of the above 
A) New York Futures Exchange. 
B) Chicago Board of Trade. 
C) International Money Market of the CME. 
D) All of the above

Question 10

If a pension fund manager is afraid interest rates may go down on his short-term portfolio of 90-day Treasury bills, he could hedge by going:

Accepted Answer

A) long on Treasury bill futures contracts. 
B) short (sell) on Treasury bill futures contracts. 
C) long on U.S. dollar contracts. 
D) short (sell) on the U.S. dollar contracts. 
A) long on Treasury bill futures contracts. 
B) short (sell) on Treasury bill futures contracts. 
C) long on U.S. dollar contracts. 
D) short (sell) on the U.S. dollar contracts.

Question 11

Interest rate swaps are __________ structured than futures and options contracts.

Accepted Answer

A) usually less 
B) usually more 
C) always more 
D) Never less 
A) usually less 
B) usually more 
C) always more 
D) Never less

Question 12

Margin maintenance requirements usually run 5-10% of the initial margin.

Accepted Answer

A) True 
 B)False

Question 13

To close a position, the seller/buyer of a contract would buy/sell a similar contract.

Accepted Answer

A) True 
 B)False

Question 14

You, a farmer, anticipate taking 80,000 bushels of soybeans to the market in three months. The current cash price for soybeans is $5.85. The size of the futures contract is 5,000 bushels per contract, and the current three-month futures price is $5.88. You decide to hedge one-half of your exposure to a drop in the value of soybeans. Assume that in three months, when you take the soybeans to market, you close out the futures contracts and the price has fallen to $5.80. What was your overall net gain or loss when considering the actual gain or loss when taking the actual soybeans to market and the partial hedge in the futures market?

Accepted Answer

A) $800 gain 
B) $800 loss 
C) $400 gain 
D) $400 loss 
E) $320 gain 
A) $800 gain 
B) $800 loss 
C) $400 gain 
D) $400 loss 
E) $320 gain

Question 15

If a corporate treasurer wants to hedge against interest rate increases on a new bond issue to be floated, he can sell short in the futures market.

Accepted Answer

A) True 
 B)False

Question 16

A speculator purchases a 37,000-pound contract for coffee for $1.08 per pound with an initial margin requirement of 7%. The price goes up to $1.13 in three months. What is the annualized gain?

Accepted Answer

A) 252.8% 
B) 264.4% 
C) 51.2% 
D) 63.2% 
E) 66.1% 
A) 252.8% 
B) 264.4% 
C) 51.2% 
D) 63.2% 
E) 66.1%

Question 17

You, a farmer, anticipate taking 80,000 bushels of soybeans to the market in three months. The current cash price for soybeans is $5.85. The size of the futures contract is 5,000 bushels per contract, and the current three-month futures price is $5.88. You decide to hedge one-half of your exposure to a drop in the value of soybeans. Assume that in three months, when you take the soybeans to market, you close out the futures contracts and the price has fallen to $5.80. What is the total loss in value over the three months on the actual soybeans you produced and took to market?

Accepted Answer

A) $2,400 
B) $2,000 
C) $6,400 
D) $4,000 
E) $3,200 
A) $2,400 
B) $2,000 
C) $6,400 
D) $4,000 
E) $3,200

Question 18

Treasury bonds are quoted in percent of par, taken to a 32nd of a percentage point.

Accepted Answer

A) True 
 B)False

Question 19

Cross-hedging refers to the practice of using one form of security to reduce risk on another form of security.

Accepted Answer

A) True 
 B)False

Exam 15: Commodities and Financial Futures

The primary participants in the commodities market include both the speculators and the hedgers.

The use of financial futures will most likely increase as financial managers gain a greater understanding and appreciation of their uses.

A speculator purchases a 37,000-pound contract for coffee for $1.08 per pound with an initial margin requirement of 7%. The price goes up to $1.13 in three months. What is the percentage of profit?

Prices in the cash market are somewhat dependent on prices in the futures market.

Financial futures consist of:

A requirement of a futures contract is that the buyer takes possession on a given date.

The high-risk, speculative nature of commodities futures is due primarily to:

The commodities exchanges are regulated primarily by the SEC.

Corn futures are traded on the:

If a pension fund manager is afraid interest rates may go down on his short-term portfolio of 90-day Treasury bills, he could hedge by going:

Interest rate swaps are __________ structured than futures and options contracts.

Margin maintenance requirements usually run 5-10% of the initial margin.

To close a position, the seller/buyer of a contract would buy/sell a similar contract.

If a corporate treasurer wants to hedge against interest rate increases on a new bond issue to be floated, he can sell short in the futures market.

A speculator purchases a 37,000-pound contract for coffee for $1.08 per pound with an initial margin requirement of 7%. The price goes up to $1.13 in three months. What is the annualized gain?

Treasury bonds are quoted in percent of par, taken to a 32nd of a percentage point.

Cross-hedging refers to the practice of using one form of security to reduce risk on another form of security.

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

Treasury bonds are quoted in percent of par, taken to a 32^nd of a percentage point.