Question 1

The establishment of a futures market in a commodity should not have a major impact on spot prices because

Accepted Answer

A) the futures market is small relative to the spot market. 
B) the futures market is illiquid. 
C) futures are a zero-sum game 
D) the futures market is large relative to the spot market. 
E) most futures contracts do not take delivery. 
A) the futures market is small relative to the spot market. 
B) the futures market is illiquid. 
C) futures are a zero-sum game 
D) the futures market is large relative to the spot market. 
E) most futures contracts do not take delivery.

Question 2

Which of the following items is specified in a futures contract?
I.the contract size
II.the maximum acceptable price range during the life of the contract
III.the acceptable grade of the commodity on which the contract is held
IV.the market price at expiration
V.the settlement price

Accepted Answer

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

Question 3

Some of the newer futures contracts include
I.fashion futures.
II.weather futures.
III.electricity futures.
IV.entertainment futures.

Accepted Answer

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

Question 4

Normal backwardation

Accepted Answer

A) maintains that for most commodities,there are natural hedgers who desire to shed risk. 
B) maintains that speculators will enter the long side of the contract only if the futures price is below the expected spot price. 
C) assumes that risk premiums in the futures markets are based on systematic risk. 
D) A and B. 
E) B and C. 
A) maintains that for most commodities,there are natural hedgers who desire to shed risk. 
B) maintains that speculators will enter the long side of the contract only if the futures price is below the expected spot price. 
C) assumes that risk premiums in the futures markets are based on systematic risk. 
D) A and B. 
E) B and C.

Question 5

A trader who has a __________ position in gold futures wants the price of gold to __________ in the future.

Accepted Answer

A) long; decrease 
B) short; decrease 
C) short; stay the same 
D) short; increase 
E) long; stay the same 
A) long; decrease 
B) short; decrease 
C) short; stay the same 
D) short; increase 
E) long; stay the same

Question 6

Financial futures contracts are actively traded on the following indices except

Accepted Answer

A) the S&P 500 Index. 
B) the New York Stock Exchange Index. 
C) the Nikkei Index. 
D) the Dow Jones Industrial Index. 
E) all of the above indices have actively traded futures contracts. 
A) the S&P 500 Index. 
B) the New York Stock Exchange Index. 
C) the Nikkei Index. 
D) the Dow Jones Industrial Index. 
E) all of the above indices have actively traded futures contracts.

Question 7

Describe the differences between futures and forward contracts.

Accepted Answer

Futures contracts are traded on the orga

Question 8

If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P 500 Index you could make an arbitrage profit by

Accepted Answer

A) buying all the stocks in the S&P 500 and selling put options on the S&P 500 index. 
B) selling short all the stocks in the S&P 500 and buying S&P Index futures. 
C) selling all the stocks in the S&P 500 and buying call options on the S&P 500 index. 
D) selling S&P 500 Index futures and buying all the stocks in the S&P 500. 
E) none of the above. 
A) buying all the stocks in the S&P 500 and selling put options on the S&P 500 index. 
B) selling short all the stocks in the S&P 500 and buying S&P Index futures. 
C) selling all the stocks in the S&P 500 and buying call options on the S&P 500 index. 
D) selling S&P 500 Index futures and buying all the stocks in the S&P 500. 
E) none of the above.

Question 9

The expectations hypothesis of futures pricing

Accepted Answer

A) is the simplest theory of futures pricing. 
B) states that the futures price equals the expected value of the future spot price of the asset. 
C) is not a zero sum game. 
D) A and B. 
E) A and C. 
A) is the simplest theory of futures pricing. 
B) states that the futures price equals the expected value of the future spot price of the asset. 
C) is not a zero sum game. 
D) A and B. 
E) A and C.

Question 10

Which of the following items is not specified in a futures contract?
I.the contract size
II.the maximum acceptable price range during the life of the contract
III.the acceptable grade of the commodity on which the contract is held
IV.the market price at expiration
V.the settlement price

Accepted Answer

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

Question 11

If you determine that the DAX-30 index futures is under priced relative to the spot DAX-30 index you could make an arbitrage profit by

Accepted Answer

A) buying all the stocks in the DAX-30 and selling put options on the DAX-30 index. 
B) selling short all the stocks in the DAX-30 and buying DAX-30 futures. 
C) selling all the stocks in the DAX-30 and buying call options on the DAX-30 index. 
D) buying DAX-30 index futures and selling all the stocks in the DAX-30. 
E) none of the above. 
A) buying all the stocks in the DAX-30 and selling put options on the DAX-30 index. 
B) selling short all the stocks in the DAX-30 and buying DAX-30 futures. 
C) selling all the stocks in the DAX-30 and buying call options on the DAX-30 index. 
D) buying DAX-30 index futures and selling all the stocks in the DAX-30. 
E) none of the above.

Question 12

Who guarantees that a futures contract will be fulfilled?

Accepted Answer

A) the buyer 
B) the seller 
C) the broker 
D) the clearinghouse 
E) nobody 
A) the buyer 
B) the seller 
C) the broker 
D) the clearinghouse 
E) nobody

Question 13

Interest rate futures contracts are actively traded on the

Accepted Answer

A) Eurodollars. 
B) Euroyen. 
C) Sterling. 
D) A and B. 
E) all of the above. 
A) Eurodollars. 
B) Euroyen. 
C) Sterling. 
D) A and B. 
E) all of the above.

Question 14

To exploit an expected increase in interest rates,an investor would most likely

Accepted Answer

A) sell Treasury bond futures. 
B) take a long position in wheat futures. 
C) buy S&P 500 index futures. 
D) take a long position in Treasury bond futures. 
E) none of the above. 
A) sell Treasury bond futures. 
B) take a long position in wheat futures. 
C) buy S&P 500 index futures. 
D) take a long position in Treasury bond futures. 
E) none of the above.

Question 15

Which one of the following statements regarding "basis" is true?

Accepted Answer

A) the basis is the difference between the futuresprice and the spot price. 
B) the basis risk is borne by the hedger. 
C) a short hedger suffers losses when the basis decreases. 
D) the basis increases when the futures price increases by more than the spot price. 
E) A,B and D. 
A) the basis is the difference between the futuresprice and the spot price. 
B) the basis risk is borne by the hedger. 
C) a short hedger suffers losses when the basis decreases. 
D) the basis increases when the futures price increases by more than the spot price. 
E) A,B and D.

Question 16

Discuss marking to market and margin accounts in the futures market.

Accepted Answer

When opening an account, the trader esta

Question 17

The buyer of a futures contract is said to have a __________ position and the seller of a futures contract is said to have a __________ position in futures.

Accepted Answer

A) long; short 
B) long; long 
C) short; short 
D) short; long 
E) margined; long 
A) long; short 
B) long; long 
C) short; short 
D) short; long 
E) margined; long

Question 18

Delivery of stock index futures

Accepted Answer

A) is never made. 
B) is made by a cash settlement based on the index value. 
C) requires delivery of 1 share of each stock in the index. 
D) is made by delivering 100 shares of each stock in the index. 
E) is made by delivering a value-weighted basket of stocks. 
A) is never made. 
B) is made by a cash settlement based on the index value. 
C) requires delivery of 1 share of each stock in the index. 
D) is made by delivering 100 shares of each stock in the index. 
E) is made by delivering a value-weighted basket of stocks.

Question 19

An investor with a long position in Treasury notes futures will profit if

Accepted Answer

A) interest rates decline. 
B) interest rate increase. 
C) the prices of Treasury notes increase. 
D) the price of the long bond increases. 
E) none of the above. 
A) interest rates decline. 
B) interest rate increase. 
C) the prices of Treasury notes increase. 
D) the price of the long bond increases. 
E) none of the above.

Question 20

Agricultural futures contracts are actively traded on

Accepted Answer

A) milk. 
B) orange juice. 
C) lumber. 
D) A and B. 
E) all of the above. 
A) milk. 
B) orange juice. 
C) lumber. 
D) A and B. 
E) all of the above.

Exam 22: Equity Valuation Models

The establishment of a futures market in a commodity should not have a major impact on spot prices because

Which of the following items is specified in a futures contract? I.the contract size II.the maximum acceptable price range during the life of the contract III.the acceptable grade of the commodity on which the contract is held IV.the market price at expiration V.the settlement price

Some of the newer futures contracts include I.fashion futures. II.weather futures. III.electricity futures. IV.entertainment futures.

Normal backwardation

A trader who has a __________ position in gold futures wants the price of gold to __________ in the future.

Financial futures contracts are actively traded on the following indices except

Describe the differences between futures and forward contracts.

If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P 500 Index you could make an arbitrage profit by

The expectations hypothesis of futures pricing

Which of the following items is not specified in a futures contract? I.the contract size II.the maximum acceptable price range during the life of the contract III.the acceptable grade of the commodity on which the contract is held IV.the market price at expiration V.the settlement price

If you determine that the DAX-30 index futures is under priced relative to the spot DAX-30 index you could make an arbitrage profit by

Who guarantees that a futures contract will be fulfilled?

Interest rate futures contracts are actively traded on the

To exploit an expected increase in interest rates,an investor would most likely

Which one of the following statements regarding "basis" is true?

Discuss marking to market and margin accounts in the futures market.

The buyer of a futures contract is said to have a __________ position and the seller of a futures contract is said to have a __________ position in futures.

Delivery of stock index futures

An investor with a long position in Treasury notes futures will profit if

Agricultural futures contracts are actively traded on

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

A trader who has a position in gold futures wants the price of gold to in the future.

The buyer of a futures contract is said to have a position and the seller of a futures contract is said to have a position in futures.