Question 1

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

Question 2

The buyer of a futures contract is said to have a __________ position, and the seller of a futures contract is said to have a __________ position in futures.

Accepted Answer

A) long; short 
B) long; long 
C) short; short 
D) short; long 
A) long; short 
B) long; long 
C) short; short 
D) short; long

Question 3

Which one of the following statements regarding "basis" is 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. 
E) The basis is the difference between the futures price and the spot price, basis risk is borne by the hedger, and 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. 
E) The basis is the difference between the futures price and the spot price, basis risk is borne by the hedger, and basis increases when the futures price increases by more than the spot price.

Question 4

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

Question 5

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

Question 6

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

Question 7

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. 
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.

Question 8

Agricultural futures contracts are actively traded on

Accepted Answer

A) soybeans. 
B) oats. 
C) wheat. 
D) soybeans and oats. 
E) All of the options are correct. 
A) soybeans. 
B) oats. 
C) wheat. 
D) soybeans and oats. 
E) All of the options are correct.

Question 9

Delivery of stock index futures

Accepted Answer

A) is never made. 
B) is made by a cash settlement based on the index value. 
C) requires delivery of 1 share of each stock in the index. 
D) is made by delivering 100 shares of each stock in the index. 
A) is never made. 
B) is made by a cash settlement based on the index value. 
C) requires delivery of 1 share of each stock in the index. 
D) is made by delivering 100 shares of each stock in the index.

Question 10

Contango

Accepted Answer

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

Question 11

Interest rate futures contracts are actively traded on the

Accepted Answer

A) eurodollars. 
B) euroyen. 
C) sterling. 
D) eurodollars and euroyen. 
E) All of the options are correct. 
A) eurodollars. 
B) euroyen. 
C) sterling. 
D) eurodollars and euroyen. 
E) All of the options are correct.

Question 12

You purchased one wheat future contract at $3.04 per bushel.What would be your profit (loss) at maturity if the wheat spot price at that time were $2.98 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

A) $30 profit 
B) $300 profit 
C) $300 loss 
D) $30 loss 
A) $30 profit 
B) $300 profit 
C) $300 loss 
D) $30 loss

Question 13

On January 1, the listed spot and futures prices of a Treasury bond were 93.8 and 93.13.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 94.09, respectively.If you were to liquidate your position, your profits would be a

Accepted Answer

A) $125 loss. 
B) $125 profit. 
C) $12.50 loss. 
D) $1,250 loss. 
A) $125 loss. 
B) $125 profit. 
C) $12.50 loss. 
D) $1,250 loss.

Question 14

The establishment of a futures market in a commodity should not have a major impact on spot prices because

Accepted Answer

A) the futures market is small relative to the spot market. 
B) the futures market is illiquid. 
C) futures are a zero-sum game. 
D) the futures market is large relative to the spot market. 
A) the futures market is small relative to the spot market. 
B) the futures market is illiquid. 
C) futures are a zero-sum game. 
D) the futures market is large relative to the spot market.

Question 15

Speculators may use futures markets rather than spot markets because

Accepted Answer

A) transaction costs are lower in futures markets. 
B) futures markets provide leverage. 
C) spot markets are less efficient. 
D) futures markets are less efficient. 
E) transaction costs are lower in futures markets, and futures markets provide leverage. 
A) transaction costs are lower in futures markets. 
B) futures markets provide leverage. 
C) spot markets are less efficient. 
D) futures markets are less efficient. 
E) transaction costs are lower in futures markets, and futures markets provide leverage.

Question 16

Who guarantees that a futures contract will be fulfilled?

Accepted Answer

A) The buyer 
B) The seller 
C) The broker 
D) The clearinghouse 
A) The buyer 
B) The seller 
C) The broker 
D) The clearinghouse

Question 17

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

Question 18

The process of marking to market

Accepted Answer

A) posts gains or losses to each account daily. 
B) may result in margin calls. 
C) impacts only long positions. 
D) posts gains or losses to each account daily and may result in margin calls. 
A) posts gains or losses to each account daily. 
B) may result in margin calls. 
C) impacts only long positions. 
D) posts gains or losses to each account daily and may result in margin calls.

Question 19

Which of the following is false about profits from futures contracts? I) The person with the long position gets to decide whether to exercise the futures contract and will only do so if there is a profit to be made.
II) It is possible for both the holder of the long position and the holder of the short position to earn a profit.
III) The clearinghouse makes most of the profit.
IV) The amount that the holder of the long position gains must equal the amount that the holder of the short position loses.

Accepted Answer

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

Question 20

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

Exam 22: Futures Markets

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?

The buyer of a futures contract is said to have a __________ position, and the seller of a futures contract is said to have a __________ position in futures.

Which one of the following statements regarding "basis" is true?

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.

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?

You bought 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.

Open interest includes

Agricultural futures contracts are actively traded on

Delivery of stock index futures

Contango

Interest rate futures contracts are actively traded on the

You purchased one wheat future contract at $3.04 per bushel.What would be your profit (loss) at maturity if the wheat spot price at that time were $2.98 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

The establishment of a futures market in a commodity should not have a major impact on spot prices because

Speculators may use futures markets rather than spot markets because

Who guarantees that a futures contract will be fulfilled?

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?

The process of marking to market

Agricultural futures contracts are actively traded on

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

The buyer of a futures contract is said to have a position, and the seller of a futures contract is said to have a position in futures.