Question 1

If you took a short position in two S&P 500 futures contracts at a price of 1,510 and closed the position when the index futures was 1,492, you incurred

Accepted Answer

A)  a gain of $9,000. 
B)  a loss of $9,000. 
C)  a loss of $18,000. 
D)  a gain of $18,000. 
E)  None of the options are correct. 
A)  a gain of $9,000. 
B)  a loss of $9,000. 
C)  a loss of $18,000. 
D)  a gain of $18,000. 
E)  None of the options are correct.

Question 2

Consider the following: $$\begin{array} { l l } 
&\text { CF Now }\
\text { Risk-free rate in the United States } & 0.04 / \text { Cear } \
\text { Risk-free rate in Australia } & 0.03 / \text { year } \
\text { Spot exchange rate } & 1.67 \mathrm {~A} \$ / \$
\end{array}$$ What should be the proper futures price for a 1-year contract?

Accepted Answer

A)  1.703 A$/$ 
B)  1.654 A$/$ 
C)  1.638 A$/$ 
D)  1.778 A$/$ 
E)  1.686 A$/$ 
A)  1.703 A$/$ 
B)  1.654 A$/$ 
C)  1.638 A$/$ 
D)  1.778 A$/$ 
E)  1.686 A$/$

Question 3

Suppose that the risk-free rates in the United States and in Canada are 5% and 3%, respectively. The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/C$. What should the futures price of the C$ for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.

Accepted Answer

A)  $1.00/C$ 
B)  $0.82/C$ 
C)  $0.88/C$ 
D)  $0.78/C$ 
E)  $1.22/C$ 
A)  $1.00/C$ 
B)  $0.82/C$ 
C)  $0.88/C$ 
D)  $0.78/C$ 
E)  $1.22/C$

Question 4

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $$\begin{array} { l r r } 
\text { Portfolio Value } & \$ \quad 1 \text { million } \
\text { Portfolio's Beta } & 0.86 \
\text { Current S\&P500 Value } & 990 \
\text { Anticipated S\&P500 Value } & 915 \

\end{array}$$ How many contracts should you buy or sell to hedge your position? Allow fractions of contracts in your answer.

Accepted Answer

A)  Sell 3.477 
B)  Buy 3.477 
C)  Sell 4.236 
D)  Buy 4.236 
E)  Sell 11.235 
A)  Sell 3.477 
B)  Buy 3.477 
C)  Sell 4.236 
D)  Buy 4.236 
E)  Sell 11.235

Question 5

Which of the following is(are) example(s) of interest rate futures contracts?

Accepted Answer

A)  Corporate bonds 
B)  Treasury bonds 
C)  Eurodollars 
D)  Treasury bonds and Eurodollars 
E)  Corporate bonds and Treasury bonds 
A)  Corporate bonds 
B)  Treasury bonds 
C)  Eurodollars 
D)  Treasury bonds and Eurodollars 
E)  Corporate bonds and Treasury bonds

Question 6

Hedging one commodity by using a futures contract on another commodity is called

Accepted Answer

A)  surrogate hedging. 
B)  cross hedging. 
C)  alternative hedging. 
D)  correlative hedging. 
E)  proxy hedging. 
A)  surrogate hedging. 
B)  cross hedging. 
C)  alternative hedging. 
D)  correlative hedging. 
E)  proxy hedging.

Question 7

Suppose that the risk-free rates in the United States and in Japan are 5.25% and 4.5%, respectively. The spot exchange rate between the dollar and the yen is $0.008828/yen. What should the futures price of the yen for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs?

Accepted Answer

A)  $0.009999/yen 
B)  $0.009981/yen 
C)  $0.008981/yen 
D)  $0.008891/yen 
A)  $0.009999/yen 
B)  $0.009981/yen 
C)  $0.008981/yen 
D)  $0.008891/yen

Question 8

A swap

Accepted Answer

A)  obligates two counterparties to exchange cash flows at one or more future dates. 
B)  allows participants to restructure their balance sheets. 
C)  allows a firm to convert outstanding fixed rate debt to floating rate debt. 
D)  obligates two counterparties to exchange cash flows at one or more future dates and allows participants to restructure their balance sheets. 
E)  All of the options are correct. 
A)  obligates two counterparties to exchange cash flows at one or more future dates. 
B)  allows participants to restructure their balance sheets. 
C)  allows a firm to convert outstanding fixed rate debt to floating rate debt. 
D)  obligates two counterparties to exchange cash flows at one or more future dates and allows participants to restructure their balance sheets. 
E)  All of the options are correct.

Question 9

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $$\begin{array} { l c } 
\text { Portfolio Value } & \$ 1 \text { milion } \
\text { Portfolio's Beta } & 0.60 \
\text { Current S\&P500 Value } & 1400 \
\text { Anticipated S\&P500 Value } & 1200 \

\end{array}$$ What is the dollar value of your expected loss?

Accepted Answer

A)  $142,900 
B)  $16,670 
C)  $85,700 
D)  $30,000 
E)  $64,200 
A)  $142,900 
B)  $16,670 
C)  $85,700 
D)  $30,000 
E)  $64,200

Question 10

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $$\begin{array} { l c } 
\text { Portfolio Value } & \$ 1 \text { milion } \
\text { Portfolio's Beta } & 0.60 \
\text { Current S\&P500 Value } & 1400 \
\text { Anticipated S\&P500 Value } & 1200 \

\end{array}$$ For a 200-point drop in the S&P 500, by how much does the value of the futures position change?

Accepted Answer

A)  $200,000 
B)  $50,000 
C)  $250,000 
D)  $500,000 
E)  $100,000 
A)  $200,000 
B)  $50,000 
C)  $250,000 
D)  $500,000 
E)  $100,000

Question 11

A hedge ratio can be computed as

Accepted Answer

A)  profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate. 
B)  the change in value of the unprotected position for a given change in the exchange rate divided by the profit . derived from one futures position for the same exchange rate.   
C)  profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate. 
D)  the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate. 
A)  profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate. 
B)  the change in value of the unprotected position for a given change in the exchange rate divided by the profit . derived from one futures position for the same exchange rate.   
C)  profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate. 
D)  the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate.

Question 12

If you purchased one S&P 500 Index futures contract at a price of 1,550 and closed your position when the index futures was 1,547, you incurred

Accepted Answer

A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of the options are correct. 
A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of the options are correct.

Question 13

Suppose that the risk-free rates in the United States and in the United Kingdom are 6% and 4%, respectively. The spot exchange rate between the dollar and the pound is $1.60/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.

Accepted Answer

A)  $1.60/BP 
B)  $1.70/BP 
C)  $1.66/BP 
D)  $1.63/BP 
E)  $1.57/BP 
A)  $1.60/BP 
B)  $1.70/BP 
C)  $1.66/BP 
D)  $1.63/BP 
E)  $1.57/BP

Question 14

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $$\begin{array} { l c } 
\text { Portfolio Value } & \$ 1 \text { milion } \
\text { Portfolio's Beta } & 0.60 \
\text { Current S\&P500 Value } & 1400 \
\text { Anticipated S\&P500 Value } & 1200 \

\end{array}$$ How many contracts should you buy or sell to hedge your position? Allow fractions of contracts in your answer.

Accepted Answer

A)  sell 1.714 
B)  buy 1.714 
C)  sell 4.236 
D)  buy 4.236 
E)  sell 11.235 
A)  sell 1.714 
B)  buy 1.714 
C)  sell 4.236 
D)  buy 4.236 
E)  sell 11.235

Question 15

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $$\begin{array} { l r r } 
\text { Portfolio Value } & \$ \quad 1 \text { million } \
\text { Portfolio's Beta } & 0.86 \
\text { Current S\&P500 Value } & 990 \
\text { Anticipated S\&P500 Value } & 915 \

\end{array}$$ For a 75-point drop in the S&P 500, by how much does the futures position change?

Accepted Answer

A)  $200,000 
B)  $50,000 
C)  $250,000 
D)  $500,000 
E)  $18,750 
A)  $200,000 
B)  $50,000 
C)  $250,000 
D)  $500,000 
E)  $18,750

Question 16

Which one of the following stock index futures has a multiplier of 50 Hong Kong dollars times the index?

Accepted Answer

A)  FTSE 100 
B)  Hang Seng 
C)  Nikkei 
D)  DAX-30 
E)  FTSE 100 and Hang Seng 
A)  FTSE 100 
B)  Hang Seng 
C)  Nikkei 
D)  DAX-30 
E)  FTSE 100 and Hang Seng

Question 17

If interest rate parity does not hold,

Accepted Answer

A)  covered interest arbitrage opportunities will exist. 
B)  covered interest arbitrage opportunities will not exist. 
C)  arbitragers will be able to make risk-free profits. 
D)  covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits. 
E)  covered interest arbitrage opportunities will not exist, and arbitragers will be able to make risk-free profits. If interest rate parity holds, covered interest arbitrage opportunities will not exist. 
A)  covered interest arbitrage opportunities will exist. 
B)  covered interest arbitrage opportunities will not exist. 
C)  arbitragers will be able to make risk-free profits. 
D)  covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits. 
E)  covered interest arbitrage opportunities will not exist, and arbitragers will be able to make risk-free profits. If interest rate parity holds, covered interest arbitrage opportunities will not exist.

Question 18

If you sold an S&P 500 Index futures contract at a price of 950 and closed your position when the index futures was 947, you incurred

Accepted Answer

A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of the options are correct. 
A)  a loss of $1,500. 
B)  a gain of $1,500. 
C)  a loss of $750. 
D)  a gain of $750. 
E)  None of the options are correct.

Question 19

Which one of the following stock index futures has a multiplier of $50 times the index value?

Accepted Answer

A)  Russell 2000 
B)  S&P 500 (E-mini) 
C)  Nikkei 
D)  DAX-30 
E)  NASDAQ 100 
A)  Russell 2000 
B)  S&P 500 (E-mini) 
C)  Nikkei 
D)  DAX-30 
E)  NASDAQ 100

Question 20

If covered interest arbitrage opportunities do not exist,

Accepted Answer

A)  interest rate parity does not hold. 
B)  interest rate parity holds. 
C)  arbitragers will be able to make risk-free profits. 
D)  interest rate parity does not hold, and arbitragers will be able to make risk-free profits. 
E)  interest rate parity holds, and arbitragers will be able to make risk-free profits. 
A)  interest rate parity does not hold. 
B)  interest rate parity holds. 
C)  arbitragers will be able to make risk-free profits. 
D)  interest rate parity does not hold, and arbitragers will be able to make risk-free profits. 
E)  interest rate parity holds, and arbitragers will be able to make risk-free profits.

If you took a short position in two S&P 500 futures contracts at a price of 1,510 and closed the position when the index futures was 1,492, you incurred

Consider the following: CF Now Risk-free rate in the United States 0.04/ Cear Risk-free rate in Australia 0.03/ year Spot exchange rate 1.67\ /\ What should be the proper futures price for a 1-year contract?

Which of the following is(are) example(s) of interest rate futures contracts?

Hedging one commodity by using a futures contract on another commodity is called

A swap

A hedge ratio can be computed as

If you purchased one S&P 500 Index futures contract at a price of 1,550 and closed your position when the index futures was 1,547, you incurred

Which one of the following stock index futures has a multiplier of 50 Hong Kong dollars times the index?

If interest rate parity does not hold,

If you sold an S&P 500 Index futures contract at a price of 950 and closed your position when the index futures was 947, you incurred

Which one of the following stock index futures has a multiplier of $50 times the index value?

If covered interest arbitrage opportunities do not exist,

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Exam 23: Futures, Swaps, and Risk Management

If you took a short position in two S&P 500 futures contracts at a price of 1,510 and closed the position when the index futures was 1,492, you incurred

Consider the following: CF Now Risk-free rate in the United States 0.04/ Cear Risk-free rate in Australia 0.03/ year Spot exchange rate 1.67\ /\ What should be the proper futures price for a 1-year contract?

Which of the following is(are) example(s) of interest rate futures contracts?

Hedging one commodity by using a futures contract on another commodity is called

A swap

A hedge ratio can be computed as

If you purchased one S&P 500 Index futures contract at a price of 1,550 and closed your position when the index futures was 1,547, you incurred

Which one of the following stock index futures has a multiplier of 50 Hong Kong dollars times the index?

If interest rate parity does not hold,

If you sold an S&P 500 Index futures contract at a price of 950 and closed your position when the index futures was 947, you incurred

Which one of the following stock index futures has a multiplier of $50 times the index value?

If covered interest arbitrage opportunities do not exist,

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters