Exam 15: Futures and Risk Management

A company which mines bauxite decides to short aluminum futures. This is an example of ________ to limit its risk.

A one-year gold futures contract is selling for $641. Spot gold prices are $600 and the one year risk free rate is 6%. The arbitrage profit implied by these prices is ________.

Violation of the spot-futures parity relationship results in ________.

If you expect a stock market downturn, one potential defensive strategy would be to ________.

You purchase an interest rate futures contract that has an initial margin requirement of 15% and a futures price of $115 098. The contract has a $100 000 underlying par value bond. If the futures price falls to $108 000 you will experience a ________ per cent loss on your money invested.

You take a long position in a futures contract of one maturity and a short position in a contract of a different maturity, both on the same commodity. This is called ________.

Which one of the following refers to the daily settlement of obligations on future positions?

Futures contracts are said to exhibit the property of convergence because ________.

Forward contracts ________ traded on an organised exchange and futures contracts ________ traded on an organised exchange.

On 1 January you sold one April S&P 500 index futures contract at a futures price of 1300. If the April futures price is 1250 on 1 February, your profit would be ________ if you close your position. (The contract multiplier is 250.)

The advantage that standardisation of futures contracts brings is that ________ is improved because ________.

Futures contracts have many advantages over forward contracts except that ________.

On Monday morning you sell one June T-bond futures contract at 97: 27 or for $97 843.75. The contract's face value is $100 000. The initial margin requirement is $2 700 and the maintenance margin requirement is $2 000 per contract. Use the following price data to answer the question. On which of the given days do you get a margin call?

An investor who is hedging a corporate bond portfolio using a T-bond futures contract is said to have a(n) ________.

Which one of the following contracts requires no cash to change hands when initiated?

On Monday morning you sell one June T-bond futures contract at 97: 27 or for $97 843.75. The contract's face value is $100 000. The initial margin requirement is $2 700 and the maintenance margin requirement is $2 000 per contract. Use the following price data to answer the question. Your cumulative rate of return on your investment after Wednesday is a/an ________.

A person with a long position in a commodity futures contract wants the price of the commodity to ________.

Sahali Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 9%. Sahali Trading Company then enters into an interest rate swap where they will pay LIBOR and receive a fixed 8.00% on a notional principal of $100 million. After all these transactions are considered, Sahali's cost of funds is ________.

Synthetic stock positions are commonly used by ________ because of their ________.

An investor who goes short in a futures contract will ________ any increase in value of the underlying asset and will ________ any decrease in value in the underlying asset.