Question 1

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 exposureE) B) and C)
F) B) and D)

Question 2

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) TE) C) and D)
F) A) and B)

Question 3

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 hourE) A) and B)
F) B) and D)

Question 4

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% lossE) B) and D)
F) A) and B)

Question 5

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)   BasisE) None of the above
F) All of the above

Question 6

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)   1291.29E) B) and C)
F) A) and B)

Question 7

The _________ contract dominates trading in stock index futures.

Accepted Answer

A)   S&P500
B)   DJIA
C)   Nasdaq 100
D)   Russell 2000E) None of the above
F) B) and C)

Question 8

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 onlyE) A) and B)
F) All of the above

Question 9

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

Accepted Answer

A)   Federal funds
B)   Eurodollars
C)   banker's acceptances
D)   repurchase agreementsE) B) and D)
F) A) and B)

Question 10

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 optionE) B) and C)
F) All of the above

Question 11

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 requirementE) A) and D)
F) A) and B)

Question 12

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

Accepted Answer

A)   CBOE
B)   CBOT
C)   CME
D)   EurexE) C) and D)
F) All of the above

Question 13

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)   zeroE) A) and B)
F) All of the above

Question 14

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)   $33,875E) B) and D)
F) All of the above

Question 15

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 zeroE) A) and C)
F) All of the above

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 futuresE) B) and C)
F) B) and D)

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.
-What are the farmer's proceeds from the sale of corn?

Accepted Answer

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

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 positionE) B) and D)
F) None of the above

Question 19

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 negativeE) All of the above
F) B) and D)

Question 20

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 thanE) B) and D)
F) C) and D)

Exam 17: Futures Markets and Risk Management

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

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

Correct Answer
verified

The _________ contract dominates trading in stock index futures.

Correct Answer
verified

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

Correct Answer
verified

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 __________.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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 _________________.

Correct Answer
verified

Correct Answer
verified

Synthetic stock positions are commonly used by because of their .

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The clearing corporation has a net position equal to ______.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Exam 17: Futures Markets and Risk Management

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The _________ contract dominates trading in stock index futures.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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 __________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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 _________________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The clearing corporation has a net position equal to ______.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Synthetic stock positions are commonly used by because of their .

Correct Answer
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