Question 1

The clearing corporation has a net position equal to ______.

Accepted Answer

A)  the open interest 
B)  the open interest times two 
C)  the open interest divided by two 
D)  zero 
A)  the open interest 
B)  the open interest times two 
C)  the open interest divided by two 
D)  zero

Question 2

A wheat farmer should __________ in order to reduce his exposure to risk associated with fluctuations in wheat prices.

Accepted Answer

A)  sell wheat futures 
B)  buy wheat futures 
C)  buy a contract for delivery of wheat now, and sell a contract for delivery of wheat at harvest time 
D)  sell wheat futures if the basis is currently positive and buy wheat futures if the basis is currently negative 
A)  sell wheat futures 
B)  buy wheat futures 
C)  buy a contract for delivery of wheat now, and sell a contract for delivery of wheat at harvest time 
D)  sell wheat futures if the basis is currently positive and buy wheat futures if the basis is currently negative

Question 3

The daily settlement of obligations on futures positions is called _____________.

Accepted Answer

A)  a margin call 
B)  marking to market 
C)  a variation margin check 
D)  initial margin requirement 
A)  a margin call 
B)  marking to market 
C)  a variation margin check 
D)  initial margin requirement

Question 4

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

Accepted Answer

A)  Listed put option 
B)  Short futures contract 
C)  Forward contract 
D)  Listed call option 
A)  Listed put option 
B)  Short futures contract 
C)  Forward contract 
D)  Listed call option

Question 5

In the futures market the short position's loss is ___________ the long position's gain.

Accepted Answer

A)  greater than 
B)  less than 
C)  equal to 
D)  sometimes less than and sometimes greater than 
A)  greater than 
B)  less than 
C)  equal to 
D)  sometimes less than and sometimes greater than

Question 6

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

Accepted Answer

A)  market timers; lower transaction cost 
B)  banks; lower risk 
C)  wealthy investors; tax treatment 
D)  money market funds; limited exposure 
A)  market timers; lower transaction cost 
B)  banks; lower risk 
C)  wealthy investors; tax treatment 
D)  money market funds; limited exposure

Question 7

Interest rate futures contracts exist for all of the following except __________.

Accepted Answer

A)  Federal funds 
B)  Eurodollars 
C)  banker's acceptances 
D)  repurchase agreements 
A)  Federal funds 
B)  Eurodollars 
C)  banker's acceptances 
D)  repurchase agreements

Question 8

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.  
-Your cumulative rate of return on your investment after Wednesday is a/an ____.

Accepted Answer

A)  79.9% loss 
B)  2.6% loss 
C)  33.0% gain 
D)  53.9% loss 
A)  79.9% loss 
B)  2.6% loss 
C)  33.0% gain 
D)  53.9% loss

Question 9

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

Accepted Answer

A)  the profits from long positions and short positions must ultimately be equal 
B)  the profits from long positions and short positions must ultimately net to zero 
C)  price discrepancies would open arbitrage opportunities for investors who spot them 
D)  the futures price and spot price of any asset must ultimately net to zero 
A)  the profits from long positions and short positions must ultimately be equal 
B)  the profits from long positions and short positions must ultimately net to zero 
C)  price discrepancies would open arbitrage opportunities for investors who spot them 
D)  the futures price and spot price of any asset must ultimately net to zero

Question 10

A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn.
-What are the farmer's proceeds from the sale of corn?

Accepted Answer

A)  $27,500 
B)  $31,875 
C)  $33,875 
D)  $35,950 
A)  $27,500 
B)  $31,875 
C)  $33,875 
D)  $35,950

Question 11

The world's largest futures and options exchange is the _______.

Accepted Answer

A)  CBOE 
B)  CBOT 
C)  CME 
D)  Eurex 
A)  CBOE 
B)  CBOT 
C)  CME 
D)  Eurex

Question 12

The Student Loan Marketing Association (SLMA)has short term student loans funded by long term debt.To hedge out this interest rate risk SLMA could ______________.
I.engage in a swap to pay fixed and receive variable interest payments
II.engage in a swap to pay variable and receive fixed interest payments
III.buy T-bond futures
IV.sell T-bond futures

Accepted Answer

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

Question 13

Which of the following provides the profit to a short 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 14

The _________ contract dominates trading in stock index futures.

Accepted Answer

A)  S&P500 
B)  DJIA 
C)  Nasdaq 100 
D)  Russell 2000 
A)  S&P500 
B)  DJIA 
C)  Nasdaq 100 
D)  Russell 2000

Question 15

When dividend paying assets are involved,the spot-futures parity relationship can be stated as _________________.

Accepted Answer

A)  F1 = S0(1 + rf) 
B)  F0 = S0(1 + rf - d)T 
C)  F0 = S0(1 + rf + d)T 
D)  F0 = S0(1 + rf)T 
A)  F1 = S0(1 + rf) 
B)  F0 = S0(1 + rf - d)T 
C)  F0 = S0(1 + rf + d)T 
D)  F0 = S0(1 + rf)T

Question 16

A corporation will be issuing bonds in 6 months and the Treasurer is concerned about unfavorable interest rate moves in the interim.The best way for her to hedge the risk is to _________________.

Accepted Answer

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

Question 17

A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn.
-Ignoring the transaction costs,how much did the farmer improve his cash flow by hedging sales with the futures contracts?

Accepted Answer

A)  $0 
B)  $2,000 
C)  $31,875 
D)  $33,875 
A)  $0 
B)  $2,000 
C)  $31,875 
D)  $33,875

Question 18

From the perspective of determining profit and loss,the long futures position most closely resembles a levered investment in a ____________.

Accepted Answer

A)  long call 
B)  short call 
C)  short stock position 
D)  long stock position 
A)  long call 
B)  short call 
C)  short stock position 
D)  long stock position

Question 19

The current level of the S&P 500 is 1250.The dividend yield on the S&P 500 is 3%.The risk-free interest rate is 6%.The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be __________.

Accepted Answer

A)  1274.33 
B)  1286.95 
C)  1268.61 
D)  1291.29 
A)  1274.33 
B)  1286.95 
C)  1268.61 
D)  1291.29

Question 20

At maturity of a future contract,the spot price and futures price must be approximately the same because of __________.

Accepted Answer

A)  marking to market 
B)  the convergence property 
C)  the open interest 
D)  the triple witching hour 
A)  marking to market 
B)  the convergence property 
C)  the open interest 
D)  the triple witching hour

The clearing corporation has a net position equal to ______.

A wheat farmer should __________ in order to reduce his exposure to risk associated with fluctuations in wheat prices.

The daily settlement of obligations on futures positions is called _____________.

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

In the futures market the short position's loss is ___________ the long position's gain.

Synthetic stock positions are commonly used by because of their .

Interest rate futures contracts exist for all of the following except __________.

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

A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn. -What are the farmer's proceeds from the sale of corn?

The world's largest futures and options exchange is the _______.

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

The _________ contract dominates trading in stock index futures.

When dividend paying assets are involved,the spot-futures parity relationship can be stated as _________________.

A corporation will be issuing bonds in 6 months and the Treasurer is concerned about unfavorable interest rate moves in the interim.The best way for her to hedge the risk is to _________________.

From the perspective of determining profit and loss,the long futures position most closely resembles a levered investment in a ____________.

The current level of the S&P 500 is 1250.The dividend yield on the S&P 500 is 3%.The risk-free interest rate is 6%.The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be __________.

At maturity of a future contract,the spot price and futures price must be approximately the same because of __________.

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

The clearing corporation has a net position equal to ______.

A wheat farmer should __________ in order to reduce his exposure to risk associated with fluctuations in wheat prices.

The daily settlement of obligations on futures positions is called _____________.

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

In the futures market the short position's loss is ___________ the long position's gain.

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

Interest rate futures contracts exist for all of the following except __________.

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

A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn. -What are the farmer's proceeds from the sale of corn?

The world's largest futures and options exchange is the _______.

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

The _________ contract dominates trading in stock index futures.

When dividend paying assets are involved,the spot-futures parity relationship can be stated as _________________.

A corporation will be issuing bonds in 6 months and the Treasurer is concerned about unfavorable interest rate moves in the interim.The best way for her to hedge the risk is to _________________.

From the perspective of determining profit and loss,the long futures position most closely resembles a levered investment in a ____________.

The current level of the S&P 500 is 1250.The dividend yield on the S&P 500 is 3%.The risk-free interest rate is 6%.The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be __________.

At maturity of a future contract,the spot price and futures price must be approximately the same because of __________.

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

Synthetic stock positions are commonly used by because of their .