Question 1

You purchased one silver future contract at $3 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

A)  $5.50 profit 
B)  $5,500 profit 
C)  $5.50 loss 
D)  $5,500 loss

Question 2

To exploit an expected decrease in interest rates, an investor would most likely

Accepted Answer

A)  buy Treasury bond futures. 
B)  take a long position in wheat futures. 
C)  buy S&P 500 Index futures. 
D)  take a short position in Treasury bond futures. 
E)  None of the options are correct.

Question 3

You sold one corn future contract at $2.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $2.10 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 4

You purchased one corn future contract at $2.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $2.10 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 5

Financial futures contracts are actively traded on the following indices except

Accepted Answer

A)  the All ordinary index. 
B)  the DAX 30 Index. 
C)  the CAC 40 Index. 
D)  the Toronto 35 Index. 
E)  All of the options are correct.

Question 6

Who guarantees that a futures contract will be fulfilled?

Accepted Answer

A)  The buyer 
B)  The seller 
C)  The broker 
D)  The clearinghouse 
E)  Nobody

Question 7

Futures contracts __________ traded on an organized exchange, and forward contracts __________ traded on an organized exchange.

Accepted Answer

A)  are not; are 
B)  are; are 
C)  are not; are not 
D)  are; are not 
E)  are; may or may not be

Question 8

You sold one oil future contract at $70 per barrel. What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

Accepted Answer

A)  $3.12 profit 
B)  $31.20 profit 
C)  $3.12 loss 
D)  $31.20 loss 
E)  None of the options are correct.

Question 9

A decrease 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 10

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 11

Which one of the following statements regarding "basis" is true? I) The basis is the difference between the futures price and the spot price.
II) The basis risk is borne by the hedger.
III) A short hedger suffers losses when the basis decreases.
IV) The basis increases when the futures price increases by more than the spot price.

Accepted Answer

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

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

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

Question 14

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 15

You sold one silver future contract at $3 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

A)  $5.50 profit 
B)  $5,500 profit 
C)  $5.50 loss 
D)  $5,500 loss 
E)  None of the options are correct.

Question 16

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 17

To hedge a short position in Treasury bonds, an investor would most likely

Accepted Answer

A)  ignore interest rate futures. 
B)  buy S&P futures. 
C)  buy interest rate futures. 
D)  sell Treasury bonds in the spot market.

Question 18

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 19

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

Accepted Answer

A)  buy one May oil futures contract. 
B)  buy two April oil futures contracts. 
C)  sell one April oil futures contract. 
D)  sell one May oil futures contract. 
E)  None of the options are correct.

Question 20

Open interest includes

Accepted Answer

A)  only contracts with a specified delivery date. 
B)  the sum of short and long positions. 
C)  the sum of short, long, and clearinghouse positions. 
D)  the sum of long or short positions and clearinghouse positions. 
E)  only long or short positions but not both.

Exam 22: Futures Markets

You purchased one silver future contract at $3 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

To exploit an expected decrease in interest rates, an investor would most likely

You sold one corn future contract at $2.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $2.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

You purchased one corn future contract at $2.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $2.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Financial futures contracts are actively traded on the following indices except

Who guarantees that a futures contract will be fulfilled?

Futures contracts traded on an organized exchange, and forward contracts traded on an organized exchange.

You sold one oil future contract at $70 per barrel. What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

A decrease in the basis will a long hedger and a short hedger.

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

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

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?

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

You sold one silver future contract at $3 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

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.

To hedge a short position in Treasury bonds, an investor would most likely

Financial futures contracts are actively traded on the following indices except

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

Open interest includes