Question 1

A long hedge is a simultaneous __________ position in the spot market and a __________ position in the futures market.

Accepted Answer

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

Question 2

Which of the following provides the profit to a long position at contract maturity?

Accepted Answer

A)  Original futures price - Spot price at maturity 
B)  Spot price at maturity - Original futures price 
C)  Zero 
D)  Basis 
A)  Original futures price - Spot price at maturity 
B)  Spot price at maturity - Original futures price 
C)  Zero 
D)  Basis

Question 3

A futures contract __________.

Accepted Answer

A)  is a contract to be signed in the future by the buyer and the seller of a commodity 
B)  is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract 
C)  is an agreement to buy or sell a specified amount of an asset at whatever the spot price happens to be on the expiration date of the contract 
D)  gives the buyer the right, but not the obligation, to buy an asset some time in the future 
A)  is a contract to be signed in the future by the buyer and the seller of a commodity 
B)  is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract 
C)  is an agreement to buy or sell a specified amount of an asset at whatever the spot price happens to be on the expiration date of the contract 
D)  gives the buyer the right, but not the obligation, to buy an asset some time in the future

Question 4

On February 25,2008 you could have purchased a futures contract from Intrade that would pay you $1 if Barack Obama wins the 2008 Democratic Party nomination.At a price of $0.81,the contract for Obama carried the highest price of any Democratic candidate.This tells you _______________.

Accepted Answer

A)  that the market believed that Obama had 81% chance of winning 
B)  that the market believed that Obama had the least chance of winning 
C)  nothing about the markets' belief concerning the odds of Obama winning 
D)  that the market believed Obama's chances of winning were about 19% 
A)  that the market believed that Obama had 81% chance of winning 
B)  that the market believed that Obama had the least chance of winning 
C)  nothing about the markets' belief concerning the odds of Obama winning 
D)  that the market believed Obama's chances of winning were about 19%

Question 5

The spot price for is $650.The dividend yield on the S&P 500 is 2.5%.The risk-free interest rate is 5%.The futures price for gold for a one year contract should be __________.

Accepted Answer

A)  $658.58 
B)  $675.43 
C)  $682.50 
D)  $666.25 
A)  $658.58 
B)  $675.43 
C)  $682.50 
D)  $666.25

Question 6

Initial margin is usually set in the region of ________ of the total value of a futures contract.

Accepted Answer

A)  5%-15% 
B)  10%-20% 
C)  15%-25% 
D)  20%-30% 
A)  5%-15% 
B)  10%-20% 
C)  15%-25% 
D)  20%-30%

Question 7

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 questions 67 through 70.  
-The volume of interest rate swaps increased from almost zero in 1980 to over __________ today.

Accepted Answer

A)  $20 million 
B)  $200 million 
C)  $200 billion 
D)  $200 trillion 
A)  $20 million 
B)  $200 million 
C)  $200 billion 
D)  $200 trillion

Question 8

At year end,taxes on a futures position _______________.

Accepted Answer

A)  must be paid if the position has been closed out 
B)  must be paid if the position has not been closed out 
C)  must be paid regardless of whether the position has been closed out or not 
D)  need not be paid if the position supports a hedge 
A)  must be paid if the position has been closed out 
B)  must be paid if the position has not been closed out 
C)  must be paid regardless of whether the position has been closed out or not 
D)  need not be paid if the position supports a hedge

Question 9

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 questions 67 through 70.  
-After Monday's close the balance on your margin account will be ________.

Accepted Answer

A)  $2,700.00 
B)  $2,000.00 
C)  $3,137.50 
D)  $2,262.50 
A)  $2,700.00 
B)  $2,000.00 
C)  $3,137.50 
D)  $2,262.50

Question 10

Forward contracts _________ traded on an organized exchange and futures contracts __________ traded on an organized exchange.

Accepted Answer

A)  are; are 
B)  are; are not 
C)  are not; are 
D)  are not; are not 
A)  are; are 
B)  are; are not 
C)  are not; are 
D)  are not; are not

Question 11

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

Accepted Answer

A)  cross hedging 
B)  long hedging 
C)  spreading 
D)  speculating 
A)  cross hedging 
B)  long hedging 
C)  spreading 
D)  speculating

Question 12

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

Accepted Answer

A)  decrease substantially 
B)  increase substantially 
C)  remain unchanged 
D)  increase or decrease substantially 
A)  decrease substantially 
B)  increase substantially 
C)  remain unchanged 
D)  increase or decrease substantially

Question 13

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.

Accepted Answer

A)  pay; pay 
B)  pay; receive 
C)  receive; pay 
D)  receive; receive 
A)  pay; pay 
B)  pay; receive 
C)  receive; pay 
D)  receive; receive

Question 14

Margin must be posted by ________.

Accepted Answer

A)  buyers of futures contracts only 
B)  sellers of futures contracts only 
C)  both buyers and sellers of futures contracts 
D)  speculators only 
A)  buyers of futures contracts only 
B)  sellers of futures contracts only 
C)  both buyers and sellers of futures contracts 
D)  speculators only

Question 15

The S&P500 index futures contract is an example of a(n)______ delivery contract.The pork bellies contract is an example of a(n)______ delivery contract.

Accepted Answer

A)  cash; cash 
B)  cash; actual 
C)  actual; cash 
D)  actual; actual 
A)  cash; cash 
B)  cash; actual 
C)  actual; cash 
D)  actual; actual

Question 16

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 __________.

Accepted Answer

A)  17% 
B)  LIBOR 
C)  LIBOR + 1% 
D)  LIBOR - 1% 
A)  17% 
B)  LIBOR 
C)  LIBOR + 1% 
D)  LIBOR - 1%

Question 17

A long hedger will __________ from an increase in the basis a short hedger will __________.

Accepted Answer

A)  be hurt; be hurt 
B)  be hurt; profit 
C)  profit; be hurt 
D)  profit; profit 
A)  be hurt; be hurt 
B)  be hurt; profit 
C)  profit; be hurt 
D)  profit; profit

Question 18

A hog farmer decides to sell hog futures.This is an example of __________ to limit its risk.

Accepted Answer

A)  cross hedging 
B)  short hedging 
C)  spreading 
D)  speculating 
A)  cross hedging 
B)  short hedging 
C)  spreading 
D)  speculating

Question 19

An investor would want to __________ to exploit an expected fall in interest rates.

Accepted Answer

A)  sell S&P 500 index futures 
B)  sell treasury bond futures 
C)  buy treasury bond futures 
D)  buy wheat futures 
A)  sell S&P 500 index futures 
B)  sell treasury bond futures 
C)  buy treasury bond futures 
D)  buy wheat futures

Question 20

A bank has made long term fixed rate mortgages and has financed them with short term deposits.To hedge out the bank's interest rate risk they could ________.

Accepted Answer

A)  sell T-bond futures 
B)  buy T-bond futures 
C)  buy stock index futures 
D)  sell stock index futures 
A)  sell T-bond futures 
B)  buy T-bond futures 
C)  buy stock index futures 
D)  sell stock index futures

A long hedge is a simultaneous position in the spot market and a position in the futures market.

Which of the following provides the profit to a long position at contract maturity?

A futures contract __________.

On February 25,2008 you could have purchased a futures contract from Intrade that would pay you $1 if Barack Obama wins the 2008 Democratic Party nomination.At a price of $0.81,the contract for Obama carried the highest price of any Democratic candidate.This tells you _______________.

The spot price for is $650.The dividend yield on the S&P 500 is 2.5%.The risk-free interest rate is 5%.The futures price for gold for a one year contract should be __________.

Initial margin is usually set in the region of ________ of the total value of a futures contract.

At year end,taxes on a futures position _______________.

Forward contracts _ traded on an organized exchange and futures contracts __ traded on an organized exchange.

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

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

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.

Margin must be posted by ________.

The S&P500 index futures contract is an example of a(n) delivery contract.The pork bellies contract is an example of a(n) delivery contract.

A long hedger will from an increase in the basis a short hedger will .

A hog farmer decides to sell hog futures.This is an example of __________ to limit its risk.

An investor would want to __________ to exploit an expected fall in interest rates.

A bank has made long term fixed rate mortgages and has financed them with short term deposits.To hedge out the bank's interest rate risk they could ________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

Exam 17: Futures Markets and Risk Management

A long hedge is a simultaneous __________ position in the spot market and a __________ position in the futures market.

Which of the following provides the profit to a long position at contract maturity?

A futures contract __________.

On February 25,2008 you could have purchased a futures contract from Intrade that would pay you $1 if Barack Obama wins the 2008 Democratic Party nomination.At a price of $0.81,the contract for Obama carried the highest price of any Democratic candidate.This tells you _______________.

The spot price for is $650.The dividend yield on the S&P 500 is 2.5%.The risk-free interest rate is 5%.The futures price for gold for a one year contract should be __________.

Initial margin is usually set in the region of ________ of the total value of a futures contract.

At year end,taxes on a futures position _______________.

Forward contracts _________ traded on an organized exchange and futures contracts __________ traded on an organized exchange.

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

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

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.

Margin must be posted by ________.

The S&P500 index futures contract is an example of a(n)______ delivery contract.The pork bellies contract is an example of a(n)______ delivery contract.

A long hedger will __________ from an increase in the basis a short hedger will __________.

A hog farmer decides to sell hog futures.This is an example of __________ to limit its risk.

An investor would want to __________ to exploit an expected fall in interest rates.

A bank has made long term fixed rate mortgages and has financed them with short term deposits.To hedge out the bank's interest rate risk they could ________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

A long hedge is a simultaneous position in the spot market and a position in the futures market.

Forward contracts _ traded on an organized exchange and futures contracts __ traded on an organized exchange.

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.

The S&P500 index futures contract is an example of a(n) delivery contract.The pork bellies contract is an example of a(n) delivery contract.

A long hedger will from an increase in the basis a short hedger will .