Question 1

​The margin requirement for a futures contract is a
1) small percent of the value of the contract
2) large percent of the value of the contract
3) source of leverage

Accepted Answer

A) 1 and 2 
B) ​1 and 3 
C) ​2 and 3 
D) ​only 3 
A) 1 and 2 
B) ​1 and 3 
C) ​2 and 3 
D) ​only 3

Question 2

If a speculator enters a futures contract to sell (make delivery), that individual anticipates selling the commodity.​

Accepted Answer

A) True 
 B)False

Question 3

When a speculator invests in a financial futures contract, the individual

Accepted Answer

A)  ​enters a contract to make future delivery 
B)  ​enters a contract to accept future delivery 
C)  ​either enters a contract to make or to accept future delivery 
D)  ​hedges to reduce the risk of loss 
A)  ​enters a contract to make future delivery 
B)  ​enters a contract to accept future delivery 
C)  ​either enters a contract to make or to accept future delivery 
D)  ​hedges to reduce the risk of loss

Question 4

A swap agreement transfers ownership in a stock from the seller to the buyer.​

Accepted Answer

A) True 
 B)False

Question 5

Hedgers enter commodity futures contracts because the contracts offer leverage.​

Accepted Answer

A) True 
 B)False

Question 6

If a speculator has a short position and the commodity's price falls, that individual will receive a margin call.​

Accepted Answer

A) True 
 B)False

Question 7

Entering a futures contracts is not speculative because commodity prices are stable.​

Accepted Answer

A) True 
 B)False

Question 8

A long position in a futures contract can be canceled by selling a futures contract (i.e., a contract to make delivery).​

Accepted Answer

A) True 
 B)False

Question 9

Small margin requirements for futures contracts implies
1) the potential profit is magnified
2) the potential loss is magnified
3) the speculator's risk exposure is increased
4) the speculator's risk exposure is decreased​

Accepted Answer

A) 1 and 3 
B) 1 and 4 
C) 1, 2, and 3 
D) 1, 2, and 4 
A) 1 and 3 
B) 1 and 4 
C) 1, 2, and 3 
D) 1, 2, and 4

Question 10

A speculator who expects interest rates to fall enters a contract to buy (i.e., accept delivery) of Treasury bills.​

Accepted Answer

A) True 
 B)False

Question 11

A speculator must make a good faith deposit after entering a futures contract to buy wheat.​

Accepted Answer

A) True 
 B)False

Question 12

The speculator must make a good faith deposit after entering a futures contract to sell.​

Accepted Answer

A) True 
 B)False

Question 13

The user of a commodity such as wheat hedges against a price increase by entering a contract to deliver wheat.​

Accepted Answer

A) True 
 B)False

Question 14

The primary reason for selling a futures contract (i.e., making a contract to deliver) is the expectation of higher prices.​

Accepted Answer

A) True 
 B)False

Question 15

Speculators reduce risk of loss by buying instead of selling stock index futures.​

Accepted Answer

A) True 
 B)False

Question 16

The futures price of a metal is $250 an ounce. Futures contracts are for 100 ounces, and the margin requirement is $3,000 a contract. The maintenance market requirement is $1,500. A speculator expects the price to rise and enters into a contract to buy the metal.​ a. How much must the speculat or initially remit?
b. If the futures price rises to $\$ 255$, what is the profit and return on the position?
c. If the futures price declines to $\$ 2.48$, what is the loss on the position?
f. If the futures price declines to $\$ 2.34$, what must the speculator do?
e. If the futures price continues to decline to $\$ 2.32$, how much does the speculator have in the account? ​

Accepted Answer

a. The initial margin requirement: @#LAT-DLM&
b. T

Question 17

A speculator who anticipates prices rising establishes a short position.​

Accepted Answer

A) True 
 B)False

Question 18

Hedging with commodity futures contracts​

Accepted Answer

A)  ​increases price fluctuations 
B)  ​reduces the risk of loss from price fluctuations 
C)  ​increases the potential return 
D)  ​does not require margin delivery 
A)  ​increases price fluctuations 
B)  ​reduces the risk of loss from price fluctuations 
C)  ​increases the potential return 
D)  ​does not require margin delivery

Question 19

If a lender agrees to lend a firm $1,000,000 after six months at the going rate, that individual can hedge against the loss from a decline in interest rates by

Accepted Answer

A)  ​buying a financial futures contract 
B)  ​selling a financial futures contract 
C)  ​taking a short position 
D)  ​making the loan now 
A)  ​buying a financial futures contract 
B)  ​selling a financial futures contract 
C)  ​taking a short position 
D)  ​making the loan now

Question 20

An investor who expects the stock market to rise should enter a stock index futures contract to sell (make delivery).​

Accepted Answer

A) True 
 B)False

Exam 29: Futures and Swaps

​The margin requirement for a futures contract is a 1) small percent of the value of the contract 2) large percent of the value of the contract 3) source of leverage

If a speculator enters a futures contract to sell (make delivery), that individual anticipates selling the commodity.​

When a speculator invests in a financial futures contract, the individual

A swap agreement transfers ownership in a stock from the seller to the buyer.​

Hedgers enter commodity futures contracts because the contracts offer leverage.​

If a speculator has a short position and the commodity's price falls, that individual will receive a margin call.​

Entering a futures contracts is not speculative because commodity prices are stable.​

A long position in a futures contract can be canceled by selling a futures contract (i.e., a contract to make delivery).​

Small margin requirements for futures contracts implies 1) the potential profit is magnified 2) the potential loss is magnified 3) the speculator's risk exposure is increased 4) the speculator's risk exposure is decreased​

A speculator who expects interest rates to fall enters a contract to buy (i.e., accept delivery) of Treasury bills.​

A speculator must make a good faith deposit after entering a futures contract to buy wheat.​

The speculator must make a good faith deposit after entering a futures contract to sell.​

The user of a commodity such as wheat hedges against a price increase by entering a contract to deliver wheat.​

The primary reason for selling a futures contract (i.e., making a contract to deliver) is the expectation of higher prices.​

Speculators reduce risk of loss by buying instead of selling stock index futures.​

A speculator who anticipates prices rising establishes a short position.​

Hedging with commodity futures contracts​

If a lender agrees to lend a firm $1,000,000 after six months at the going rate, that individual can hedge against the loss from a decline in interest rates by

An investor who expects the stock market to rise should enter a stock index futures contract to sell (make delivery).​

The Role of Financial Markets and Financial Intermediaries

Investment Banking

Securities Markets

The Federal Reserve

International Currency Flows

The Time Value of Money

Risk and Its Measurement

Analysis of Financial Statements

The Features of Stock

Stock Valuation

The Features of Long-Term Debt - Bonds

Bond Pricing and Yields

Preferred Stock

Convertile Securities

Investment Returns

Investment Companies

Forms of Businss and Corporate Taxation

Break-Even Analysis and the Payback Period

Leverage

Cost of Capital

Capital Budgeting

Forecasting

Cash Budgeting

Management of Current Assets

Management of Short-Term Liabilities

Intermediate-Term Debt and Leasing

Options: Puts and Calls

Filters

The margin requirement for a futures contract is a 1) small percent of the value of the contract 2) large percent of the value of the contract 3) source of leverage

If a speculator enters a futures contract to sell (make delivery), that individual anticipates selling the commodity.

A swap agreement transfers ownership in a stock from the seller to the buyer.

Hedgers enter commodity futures contracts because the contracts offer leverage.

If a speculator has a short position and the commodity's price falls, that individual will receive a margin call.

Entering a futures contracts is not speculative because commodity prices are stable.

A long position in a futures contract can be canceled by selling a futures contract (i.e., a contract to make delivery).

Small margin requirements for futures contracts implies 1) the potential profit is magnified 2) the potential loss is magnified 3) the speculator's risk exposure is increased 4) the speculator's risk exposure is decreased

A speculator who expects interest rates to fall enters a contract to buy (i.e., accept delivery) of Treasury bills.

A speculator must make a good faith deposit after entering a futures contract to buy wheat.

The speculator must make a good faith deposit after entering a futures contract to sell.

The user of a commodity such as wheat hedges against a price increase by entering a contract to deliver wheat.

The primary reason for selling a futures contract (i.e., making a contract to deliver) is the expectation of higher prices.

Speculators reduce risk of loss by buying instead of selling stock index futures.

A speculator who anticipates prices rising establishes a short position.

Hedging with commodity futures contracts

An investor who expects the stock market to rise should enter a stock index futures contract to sell (make delivery).