Exam 17: Futures Markets and Risk Management

Single stock futures, as opposed to stock index futures, are ________.

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

Violation of the spot-futures parity relationship results in ________.

An established value below which a trader's margin may not fall is called the ________.

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 ________.

A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1-year risk-free rate is 3%. The arbitrage profit implied by these prices is ________.

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

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

The overwhelming majority of trading in futures contracts is done via ________.

Futures markets are regulated by the ________.

If you expect a stock market downturn, one potential defensive strategy would be to ________.

You take a long position in a futures contract of one maturity and a short position in a contract of a different maturity, both on the same commodity. This is called a ________.

The S&P 500 Index futures contract is an example of a(n) ________ delivery contract. The pork bellies contract is an example of a(n) ________ delivery contract.

The spot price for gold is $1,550 per ounce. The dividend yield on the S&P 500 is 2.5%. The risk-free interest rate is 3.5%. The futures price for gold for a 6-month contract on gold should be ________.

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 II. Buy T-bond futures IV. Sell T-bond futures

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

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

Interest rate swaps involve the exchange of ________.

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.

A stock index spot price is $1,350. The zero coupon interest rate is 2.6%. What is the potential arbitrage profit if the 6-month futures contract on the index is priced at $1,342?