Exam 17: Futures Markets and Risk Management

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?

(Multiple Choice)

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Question 41

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

(Multiple Choice)

4.8/5

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Question 42

Which one of the following is a true statement?

(Multiple Choice)

4.8/5

(80)

Question 43

A futures contract ________.

(Multiple Choice)

4.7/5

(85)

Question 44

If an asset price declines, the investor with a ________ is exposed to the largest potential loss.

(Multiple Choice)

5.0/5

(82)

Question 45

Margin requirements for futures contracts can be met by ________.

(Multiple Choice)

4.8/5

(88)

Question 46

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

(Multiple Choice)

4.7/5

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Question 47

Synthetic stock positions are commonly used by because of their .

(Multiple Choice)

4.9/5

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Question 48

The and the have the lowest correlations with the large-cap indexes.

(Multiple Choice)

4.9/5

(72)

Question 49

The price of a corn futures contract is $2.65 per bushel when the contract is issued, and the commodity spot price is $2.55. When the contract expires, the two prices are identical. What principle is represented by this price behavior?

(Multiple Choice)

4.8/5

(80)

Question 50

The clearing corporation has a net position equal to ________.

(Multiple Choice)

4.9/5

(71)

Question 51

You believe that the spread between the September T-bond contract and the June T-bond futures contract is too large and will soon correct. This market exhibits positive cost of carry for all contracts. To take advantage of this, you should ________.

(Multiple Choice)

4.9/5

(71)

Question 52

Forward contracts traded on an organized exchange, and futures contracts traded on an organized exchange.

(Multiple Choice)

4.8/5

(81)

Question 53

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

(Multiple Choice)

4.9/5

(86)

Question 54

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

(Multiple Choice)

4.8/5

(89)

Question 55

The use of leverage is practiced in the futures markets due to the existence of ________.

(Multiple Choice)

4.9/5

(82)

Question 56

The ________ contract dominates trading in stock-index futures.

(Multiple Choice)

4.8/5

(70)

Question 57

You own a $15 million bond portfolio with a modified duration of 11 years. Interest rates are expected to increase by 5 basis points, or 0.05%. What is the price value of a basis point?

(Multiple Choice)

4.8/5

(72)

Question 58

If the risk-free rate is greater than the dividend yield, then we know that ________.

(Multiple Choice)

4.8/5

(87)

Question 59

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

(Multiple Choice)

4.8/5

(75)

Question 60

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Exam 17: Futures Markets and Risk Management

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

Which one of the following is a true statement?

A futures contract ________.

If an asset price declines, the investor with a ________ is exposed to the largest potential loss.

Margin requirements for futures contracts can be met by ________.

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

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

The ________ and the ________ have the lowest correlations with the large-cap indexes.

The price of a corn futures contract is $2.65 per bushel when the contract is issued, and the commodity spot price is $2.55. When the contract expires, the two prices are identical. What principle is represented by this price behavior?

The clearing corporation has a net position equal to ________.

You believe that the spread between the September T-bond contract and the June T-bond futures contract is too large and will soon correct. This market exhibits positive cost of carry for all contracts. To take advantage of this, you should ________.

Forward contracts ________ traded on an organized exchange, and futures contracts ________ traded on an organized exchange.

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

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

The use of leverage is practiced in the futures markets due to the existence of ________.

The ________ contract dominates trading in stock-index futures.

You own a $15 million bond portfolio with a modified duration of 11 years. Interest rates are expected to increase by 5 basis points, or 0.05%. What is the price value of a basis point?

If the risk-free rate is greater than the dividend yield, then we know that ________.

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

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters

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

Synthetic stock positions are commonly used by because of their .

The and the have the lowest correlations with the large-cap indexes.

Forward contracts traded on an organized exchange, and futures contracts traded on an organized exchange.

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