Question 1

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. 
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. D

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. 
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. A

Question 3

Agricultural futures contracts are actively traded on

Accepted Answer

A) corn. 
B) oats. 
C) pork bellies. 
D) corn and oats. 
E) All of the options are correct. 
A) corn. 
B) oats. 
C) pork bellies. 
D) corn and oats. 
E) All of the options are correct. E

Question 4

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

Accepted Answer

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

Question 5

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

Question 6

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. 
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 7

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

Question 8

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

Question 9

Which one of the following statements regarding "basis" is not true?

Accepted Answer

A) The basis is the difference between the futures price and the spot price. 
B) The basis risk is borne by the hedger. 
C) A short hedger suffers losses when the basis decreases. 
D) The basis increases when the futures price increases by more than the spot price. 
A) The basis is the difference between the futures price and the spot price. 
B) The basis risk is borne by the hedger. 
C) A short hedger suffers losses when the basis decreases. 
D) The basis increases when the futures price increases by more than the spot price.

Question 10

In a futures contract, the futures price is

Accepted Answer

A) determined by the buyer and the seller when the delivery of the commodity takes place. 
B) determined by the futures exchange. 
C) determined by the buyer and the seller when they initiate the contract. 
D) determined independently by the provider of the underlying asset. 
A) determined by the buyer and the seller when the delivery of the commodity takes place. 
B) determined by the futures exchange. 
C) determined by the buyer and the seller when they initiate the contract. 
D) determined independently by the provider of the underlying asset.

Question 11

If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P 500 Index, you could make an arbitrage profit by

Accepted Answer

A) buying all the stocks in the S&P 500 and selling put options on the S&P 500 Index. 
B) selling short all the stocks in the S&P 500 and buying S&P Index futures. 
C) selling all the stocks in the S&P 500 and buying call options on the S&P 500 Index. 
D) selling S&P 500 Index futures and buying all the stocks in the S&P 500. 
A) buying all the stocks in the S&P 500 and selling put options on the S&P 500 Index. 
B) selling short all the stocks in the S&P 500 and buying S&P Index futures. 
C) selling all the stocks in the S&P 500 and buying call options on the S&P 500 Index. 
D) selling S&P 500 Index futures and buying all the stocks in the S&P 500.

Question 12

Some of the newer futures contracts include I) fashion futures.
II) weather futures.
III) electricity futures.
IV) entertainment futures.

Accepted Answer

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

Question 13

On January 1, the listed spot and futures prices of a Treasury bond were 95.4 and 95.6.You sold $100,000 par value Treasury bonds and purchased one Treasury bond futures contract.One month later, the listed spot price and futures prices were 95 and 94.4, respectively.If you were to liquidate your position, your profits would be a

Accepted Answer

A) $125 loss. 
B) $125 profit. 
C) $1,060.50 loss. 
D) $1,062.50 profit. 
E) None of the options are correct. 
A) $125 loss. 
B) $125 profit. 
C) $1,060.50 loss. 
D) $1,062.50 profit. 
E) None of the options are correct.

Question 14

Foreign currency futures contracts are actively traded on the

Accepted Answer

A) euro. 
B) British pound. 
C) drachma. 
D) euro and British pound. 
A) euro. 
B) British pound. 
C) drachma. 
D) euro and British pound.

Question 15

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 
A) $950 profit 
B) $95 profit 
C) $950 loss 
D) $95 loss

Question 16

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. 
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.

Question 17

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

Question 18

An investor with a long position in Treasury notes futures will profit if

Accepted Answer

A) interest rates decline. 
B) interest rates increase. 
C) the prices of Treasury notes decrease. 
D) the price of the S&P 500 Index increases. 
A) interest rates decline. 
B) interest rates increase. 
C) the prices of Treasury notes decrease. 
D) the price of the S&P 500 Index increases.

Question 19

A trader who has a __________ position in oil futures believes the price of oil will __________ in the future.

Accepted Answer

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

Question 20

On April 1, you sold one S&P 500 Index futures contract at a futures price of 1,550.If, on June 15, the futures price was 1,612, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Accepted Answer

A) $1,550 loss 
B) $15,550 loss 
C) $15,550 profit 
D) $1,550 profit 
A) $1,550 loss 
B) $15,550 loss 
C) $15,550 profit 
D) $1,550 profit

Exam 22: Futures Markets

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

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

Agricultural futures contracts are actively traded on

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

You purchased 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.

Financial futures contracts are actively traded on the following indices except

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

Which one of the following statements regarding "basis" is not true?

In a futures contract, the futures price is

If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P 500 Index, you could make an arbitrage profit by

Some of the newer futures contracts include I) fashion futures. II) weather futures. III) electricity futures. IV) entertainment futures.

Foreign currency futures contracts are actively traded on the

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.

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

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

An investor with a long position in Treasury notes futures will profit if

A trader who has a __________ position in oil futures believes the price of oil will __________ in the future.

On April 1, you sold one S&P 500 Index futures contract at a futures price of 1,550.If, on June 15, the futures price was 1,612, what would be your profit (loss) if you closed your position (without considering transactions costs)?

The Investment Environment

Financial Markets, Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

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

A trader who has a position in oil futures believes the price of oil will in the future.