Question 1

A futures position that is equal,but opposite,the position you have in the underlying asset defines which one of the following terms?

Accepted Answer

A) short hedge 
B) long hedge 
C) full hedge 
D) partial hedge 
E) underlying hedge 
A) short hedge 
B) long hedge 
C) full hedge 
D) partial hedge 
E) underlying hedge C

Question 2

What is the normal means of delivery on a Treasury note futures contract?

Accepted Answer

A) delivery in cash 
B) change in registered ownership 
C) direct deposit of cash into the seller's bank account 
D) wire transfer of funds from the buyer's bank to the seller's bank 
E) payment by certified check on the maturity date 
A) delivery in cash 
B) change in registered ownership 
C) direct deposit of cash into the seller's bank account 
D) wire transfer of funds from the buyer's bank to the seller's bank 
E) payment by certified check on the maturity date B

Question 3

Futures margin is defined as the deposit of funds into a futures trading account for which one of the following purposes?

Accepted Answer

A) purchase additional futures contracts 
B) take a hedge position in the future 
C) cover potential losses from outstanding positions 
D) cover the trading costs and commissions 
E) cover the future costs of reversing the position 
A) purchase additional futures contracts 
B) take a hedge position in the future 
C) cover potential losses from outstanding positions 
D) cover the trading costs and commissions 
E) cover the future costs of reversing the position C

Question 4

Which one of the following statements is true regarding futures contracts?

Accepted Answer

A) Futures prices are generally set equal to the spot price on the delivery date. 
B) Futures contracts generally grant the buyer the option to accept only a portion of the contract. 
C) Cost and convenience are the two key considerations when establishing the settlement procedures. 
D) The seller of a futures contract has the option to deliver cash in an amount equal to the contract value in lieu of the underlying asset. 
E) The buyer and seller of the contract negotiate the price on the maturity date. 
A) Futures prices are generally set equal to the spot price on the delivery date. 
B) Futures contracts generally grant the buyer the option to accept only a portion of the contract. 
C) Cost and convenience are the two key considerations when establishing the settlement procedures. 
D) The seller of a futures contract has the option to deliver cash in an amount equal to the contract value in lieu of the underlying asset. 
E) The buyer and seller of the contract negotiate the price on the maturity date.

Question 5

Which one of the following futures contracts is generally used to hedge a bond portfolio?

Accepted Answer

A) S&P 500 index 
B) Eurodollar 
C) U.S. Treasury notes 
D) gold 
E) LIBOR rates 
A) S&P 500 index 
B) Eurodollar 
C) U.S. Treasury notes 
D) gold 
E) LIBOR rates

Question 6

What is the price difference on a $100,000,10-year Treasury note futures contract between the highest and lowest prices at which the bond traded on this day?
Treasury note,$100,000,pts and one-half of 1/32 of a point

Accepted Answer

A) $106.50 
B) $1,065.00 
C) $1,203.13 
D) $10,650.00 
E) $12,031.30 
A) $106.50 
B) $1,065.00 
C) $1,203.13 
D) $10,650.00 
E) $12,031.30

Question 7

The Country Farm and the Cookie Maker met today and agreed to exchange wheat six months from now at a price which they negotiated today.This agreement was made between the two firms and did not pass through an organized exchange.Which one of the following best describes this transaction?

Accepted Answer

A) futures contract 
B) spot market 
C) cash market 
D) forward contract 
E) CME transaction 
A) futures contract 
B) spot market 
C) cash market 
D) forward contract 
E) CME transaction

Question 8

The spot rate on a non-dividend-paying stock is $42.30.The risk-free rate is 3.75 percent and the market rate is 11.50 percent.What is the three-month futures rate if spot-futures parity exists?

Accepted Answer

A) $42.14 
B) $42.54 
C) $42.69 
D) $42.82 
E) $43.89 
A) $42.14 
B) $42.54 
C) $42.69 
D) $42.82 
E) $43.89

Question 9

Futures contracts exist for which of the following?
I.pork bellies
II.S&P 500 index
III.Eurodollars
IV.cocoa

Accepted Answer

A) I and IV only 
B) II and III only 
C) I, II, and IV only 
D) I, III, and IV only 
E) I, II, III, and IV 
A) I and IV only 
B) II and III only 
C) I, II, and IV only 
D) I, III, and IV only 
E) I, II, III, and IV

Question 10

The 6-month futures price on a non-dividend-paying stock is $36.20.The risk-free rate is 2.75 percent and the market rate is 9.60 percent.What is the spot rate for this stock if spot-futures parity exists?

Accepted Answer

A) $35.43 
B) $35.71 
C) $36.30 
D) $36.70 
E) $36.99 
A) $35.43 
B) $35.71 
C) $36.30 
D) $36.70 
E) $36.99

Question 11

Which one of the following describes the typical initial margin requirements for a futures contract?

Accepted Answer

A) 2 to 5 percent of contract value on short positions only 
B) 2 to 5 percent of contract value on both long and short positions 
C) 4 to 8 percent of contract value on long positions only 
D) 4 to 8 percent of contract value on short positions only 
E) 5 to 15 percent of contract value on both long and short positions 
A) 2 to 5 percent of contract value on short positions only 
B) 2 to 5 percent of contract value on both long and short positions 
C) 4 to 8 percent of contract value on long positions only 
D) 4 to 8 percent of contract value on short positions only 
E) 5 to 15 percent of contract value on both long and short positions

Question 12

You currently have a long position in the 3-month futures market.Which one of the following would be a reverse trade to this position?

Accepted Answer

A) short spot 
B) long spot 
C) short 3-month futures 
D) long 3-month futures 
E) short 6-month futures 
A) short spot 
B) long spot 
C) short 3-month futures 
D) long 3-month futures 
E) short 6-month futures

Question 13

Which one of the following statements is correct concerning an inverted futures market?

Accepted Answer

A) The basis will be negative. 
B) The basis will equal zero. 
C) The cash price will equal the futures price. 
D) The cash price will exceed the futures price. 
E) Arbitrage opportunities must exist. 
A) The basis will be negative. 
B) The basis will equal zero. 
C) The cash price will equal the futures price. 
D) The cash price will exceed the futures price. 
E) Arbitrage opportunities must exist.

Question 14

Which one of the following is another name for the cash market?

Accepted Answer

A) futures market 
B) forward market 
C) arbitrage market 
D) current basis market 
E) spot market 
A) futures market 
B) forward market 
C) arbitrage market 
D) current basis market 
E) spot market

Question 15

Which one of the following is the definition of the term "basis"?

Accepted Answer

A) initial cost of purchasing a futures contract 
B) future price of a transaction that is agreed upon today 
C) difference between the cash and futures price of a commodity 
D) the expected future price of a commodity based on the current spot price 
E) the expected spot price of a commodity based on the future price 
A) initial cost of purchasing a futures contract 
B) future price of a transaction that is agreed upon today 
C) difference between the cash and futures price of a commodity 
D) the expected future price of a commodity based on the current spot price 
E) the expected spot price of a commodity based on the future price

Question 16

Lucas owns a large farming operation which encompasses over 5,000 acres of corn.The crop this year is abundant and will be ready for harvesting next month.Lucas likes the market prices today but expects the prices to decline over the next month as the supply of corn increases.Which one of the following positions should Lucas take to hedge his corn crop?

Accepted Answer

A) sell in the spot market today 
B) buy in the spot market today 
C) take a long futures position 
D) take a short futures position 
E) sell in the spot today and take a long position in the futures market 
A) sell in the spot market today 
B) buy in the spot market today 
C) take a long futures position 
D) take a short futures position 
E) sell in the spot today and take a long position in the futures market

Question 17

You own a portfolio which is valued at $12.5 million and which has a beta of 1.42.You would like to create a riskless portfolio by hedging using S&P 500 futures contracts.The contract size is $250 times the index level.How many futures contracts do you need to acquire if the current S&P 500 index is 1420?

Accepted Answer

A) short 68 contracts 
B) short 50 contracts 
C) long 41 contracts 
D) long 57 contracts 
E) short 63 contracts 
A) short 68 contracts 
B) short 50 contracts 
C) long 41 contracts 
D) long 57 contracts 
E) short 63 contracts

Question 18

You are a baker and need to purchase a substantial amount of wheat flour three months from now in preparation for your busy season.Your concern is that the price of wheat will increase substantially before you make your purchase.Which one of the following positions in wheat would be an effective hedge for you?

Accepted Answer

A) long position in spot market 
B) short position in spot market 
C) long position in futures market 
D) short position in futures market 
E) none of these 
A) long position in spot market 
B) short position in spot market 
C) long position in futures market 
D) short position in futures market 
E) none of these

Question 19

Which one of the following entails the use of computers to monitor prices and also to submit trade orders in response to arbitrage opportunities?

Accepted Answer

A) computer simulation 
B) computer hedging 
C) automated monitoring 
D) program trading 
E) cash-futures parity 
A) computer simulation 
B) computer hedging 
C) automated monitoring 
D) program trading 
E) cash-futures parity

Question 20

Which one of the following terms is defined as the strategy of monitoring the futures price on a stock index in relation to the value of the underlying index to profit from any parity deviations?

Accepted Answer

A) parity trading 
B) index trading 
C) program monitoring 
D) inverted arbitrage 
E) index arbitrage 
A) parity trading 
B) index trading 
C) program monitoring 
D) inverted arbitrage 
E) index arbitrage

A futures position that is equal,but opposite,the position you have in the underlying asset defines which one of the following terms?

What is the normal means of delivery on a Treasury note futures contract?

Futures margin is defined as the deposit of funds into a futures trading account for which one of the following purposes?

Which one of the following statements is true regarding futures contracts?

Which one of the following futures contracts is generally used to hedge a bond portfolio?

What is the price difference on a $100,000,10-year Treasury note futures contract between the highest and lowest prices at which the bond traded on this day? Treasury note,$100,000,pts and one-half of 1/32 of a point

The Country Farm and the Cookie Maker met today and agreed to exchange wheat six months from now at a price which they negotiated today.This agreement was made between the two firms and did not pass through an organized exchange.Which one of the following best describes this transaction?

The spot rate on a non-dividend-paying stock is $42.30.The risk-free rate is 3.75 percent and the market rate is 11.50 percent.What is the three-month futures rate if spot-futures parity exists?

Futures contracts exist for which of the following? I.pork bellies II.S&P 500 index III.Eurodollars IV.cocoa

The 6-month futures price on a non-dividend-paying stock is $36.20.The risk-free rate is 2.75 percent and the market rate is 9.60 percent.What is the spot rate for this stock if spot-futures parity exists?

Which one of the following describes the typical initial margin requirements for a futures contract?

You currently have a long position in the 3-month futures market.Which one of the following would be a reverse trade to this position?

Which one of the following statements is correct concerning an inverted futures market?

Which one of the following is another name for the cash market?

Which one of the following is the definition of the term "basis"?

Which one of the following entails the use of computers to monitor prices and also to submit trade orders in response to arbitrage opportunities?

Which one of the following terms is defined as the strategy of monitoring the futures price on a stock index in relation to the value of the underlying index to profit from any parity deviations?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 14: Futures Contracts

A futures position that is equal,but opposite,the position you have in the underlying asset defines which one of the following terms?

What is the normal means of delivery on a Treasury note futures contract?

Futures margin is defined as the deposit of funds into a futures trading account for which one of the following purposes?

Which one of the following statements is true regarding futures contracts?

Which one of the following futures contracts is generally used to hedge a bond portfolio?

What is the price difference on a $100,000,10-year Treasury note futures contract between the highest and lowest prices at which the bond traded on this day? Treasury note,$100,000,pts and one-half of 1/32 of a point

The Country Farm and the Cookie Maker met today and agreed to exchange wheat six months from now at a price which they negotiated today.This agreement was made between the two firms and did not pass through an organized exchange.Which one of the following best describes this transaction?

The spot rate on a non-dividend-paying stock is $42.30.The risk-free rate is 3.75 percent and the market rate is 11.50 percent.What is the three-month futures rate if spot-futures parity exists?

Futures contracts exist for which of the following? I.pork bellies II.S&P 500 index III.Eurodollars IV.cocoa

The 6-month futures price on a non-dividend-paying stock is $36.20.The risk-free rate is 2.75 percent and the market rate is 9.60 percent.What is the spot rate for this stock if spot-futures parity exists?

Which one of the following describes the typical initial margin requirements for a futures contract?

You currently have a long position in the 3-month futures market.Which one of the following would be a reverse trade to this position?

Which one of the following statements is correct concerning an inverted futures market?

Which one of the following is another name for the cash market?

Which one of the following is the definition of the term "basis"?

Which one of the following entails the use of computers to monitor prices and also to submit trade orders in response to arbitrage opportunities?

Which one of the following terms is defined as the strategy of monitoring the futures price on a stock index in relation to the value of the underlying index to profit from any parity deviations?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters