Question 1

Which of the following items is not specified in a futures contract?I) The contract sizeII) The maximum acceptable price range during the life of the contractIII) The acceptable grade of the commodity on which the contract is heldIV) The market price at expirationV) The settlement price

Accepted Answer

A)   II and IV
B)   I, III, and V
C)   I and V
D)   I, IV, and V
E)   I, II, III, IV, and V A

Question 2

Given a stock index with a value of $1,100, an anticipated dividend of $27, and a risk-free rate of 3%, what should be the value of one futures contract on the index?

Accepted Answer

A)   $943.40
B)   $970.00
C)   $913.40
D)   $1,106.00
E)   $1,000.00 D

Question 3

Contango

Accepted Answer

A)   holds that the natural hedgers are the purchasers of a commodity, not the suppliers.
B)   is a hypothesis polar opposite to backwardation.
C)   holds that FO must be less than (PT) .
D)   holds that the natural hedgers are the purchasers of a commodity, not the suppliers, and holds that
E)   holds that the natural hedgers are the purchasers of a commodity, not the suppliers, and is a hypothesis polar opposite to backwardation. E

Question 4

You hold one long corn futures contract that expires in April. To close your position in corn futures before the delivery date you must

Accepted Answer

A)   buy one May corn futures contract.
B)   buy two April corn futures contract.
C)   sell one April corn futures contract.
D)   sell one May corn futures contract.

Question 5

You sold one soybean future contract at $5.13 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $5.26 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

A)   $65 profit
B)   $650 profit
C)   $650 loss
D)   $65 loss

Question 6

You sold one corn future contract at $6.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $6.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

A)   $950 profit
B)   $95 profit
C)   $950 loss
D)   $95 loss
E)   None of the options are correct.

Question 7

A trader who has a __________ position in gold futures wants the price of gold to __________ in the future.

Accepted Answer

A)   long; decrease
B)   short; decrease
C)   short; stay the same
D)   short; increase
E)   long; stay the same

Question 8

Financial futures contracts are actively traded on which of the following indices?

Accepted Answer

A)   The S&P 500 Index
B)   The New York Stock Exchange Index
C)   The Nikkei Index
D)   The Dow Jones Industrial Index
E)   All of the options are correct.

Question 9

If a trader holding a long position in corn futures fails to meet the obligations of a futures contract, the party that is hurt by the failure is

Accepted Answer

A)   the offsetting short trader.
B)   the corn farmer.
C)   the clearinghouse.
D)   the broker.
E)   the commodities dealer.

Question 10

An increase in the basis will __________ a long hedger and __________ a short hedger.

Accepted Answer

A)   hurt; benefit
B)   hurt; hurt
C)   benefit; hurt
D)   benefit; benefit
E)   benefit; have no effect upon

Question 11

Given a stock index with a value of $1,125, an anticipated dividend of $33, and a risk-free rate of 4%, what should be the value of one futures contract on the index?

Accepted Answer

A)   $1137.00
B)   $1070.00
C)   $993.40
D)   $995.09
E)   $1000.00

Question 12

If you determine that the DAX-30 Index futures is underpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

Accepted Answer

A)   buying all the stocks in the DAX-30 and selling put options on the DAX-30 Index.
B)   selling short all the stocks in the DAX-30 and buying DAX-30 futures.
C)   selling all the stocks in the DAX-30 and buying call options on the DAX-30 Index.
D)   buying DAX-30 Index futures and selling all the stocks in the DAX-30.
E)   None of the options are correct.

Question 13

Agricultural futures contracts are actively traded on

Accepted Answer

A)   rice.
B)   sugar.
C)   canola.
D)   rice and sugar.
E)   All of the options are correct.

Question 14

Taxation of futures trading gains and losses

Accepted Answer

A)   is based on cumulative year-end profits or losses.
B)   occurs based on the date contracts are sold or closed.
C)   can be timed to offset stock-portfolio gains and losses.
D)   is based on the contract holding period.
E)   None of the options are correct.

Question 15

You purchased one silver future contract at $2 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $3.50 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

A)   $5,500 profit
B)   $7,500 profit
C)   $7,500 loss
D)   $5,500 loss

Question 16

With regard to futures contracts, what does the word "margin" mean?

Accepted Answer

A)   It is the amount of the money borrowed from the broker when you buy the contract.
B)   It is the maximum percentage that the price of the contract can change before it is marked to market.
C)   It is the maximum percentage that the price of the underlying asset can change before it is marked to market.
D)   It is a good-faith deposit made at the time of the contract's purchase or sale.
E)   It is the amount by which the contract is marked to market.

Question 17

Financial futures contracts are actively traded on the following indices except

Accepted Answer

A)   the S&P 500 Index.
B)   the New York Stock Exchange Index.
C)   the Nikkei Index.
D)   the Dow Jones Industrial Index.
E)   All are actively traded.

Question 18

On January 1, the listed spot and futures prices of a Treasury bond were 93.80 and 93.25. You purchased $100,000 par value Treasury bonds and sold one Treasury bond futures contract. One month later, the listed spot price and futures prices were 94 and 94.50, respectively. If you were to liquidate your position, your profits would be a

Accepted Answer

A)   $1050 loss.
B)   $1050 profit.
C)   $1250 loss.
D)   $1250 gain.
E)   None of the options are correct.

Question 19

Given a stock index with a value of $1,500, an anticipated dividend of $62 and a risk-free rate of 5.75%, what should be the value of one futures contract on the index?

Accepted Answer

A)   $1,343.40
B)   $62.00
C)   $1,418.44
D)   $1,524.25

Question 20

Given a stock index with a value of $1,200, an anticipated dividend of $45, and a risk-free rate of 6%, what should be the value of one futures contract on the index?

Accepted Answer

A)   $1,227.00
B)   $1,070.00
C)   $993.40
D)   $995.09
E)   $1,000.00

Exam 22: Futures Markets