Question 1

In general, less than 2% of futures contracts are settled by delivery.

Accepted Answer

A) True 
 B)False  True

Question 2

Locals are brokers who:

Accepted Answer

A)  Buy and sell for their own account. 
B)  Are professional risk takers. 
C)  Add liquidity to the futures market. 
D)  Play the same effective role as a market maker. 
E)  All of the above. 
A)  Buy and sell for their own account. 
B)  Are professional risk takers. 
C)  Add liquidity to the futures market. 
D)  Play the same effective role as a market maker. 
E)  All of the above. E

Question 3

The minimum level by which an investor's equity position may fall as a result of unfavorable price movement before the investor is required to deposit additional margin is called:

Accepted Answer

A)  The initial margin. 
B)  The maintenance margin. 
C)  The variation margin. 
D)  A and b only. 
E)  None of the above. 
A)  The initial margin. 
B)  The maintenance margin. 
C)  The variation margin. 
D)  A and b only. 
E)  None of the above. B

Question 4

Which of the following statements is most correct?

Accepted Answer

A)  A forward contract, just like a futures contract, is an agreement for the future delivery of something at a specified price at the end of a designated period of time. 
B)  A forward contact, just like a futures contract, is traded on an exchange floor. 
C)  A forward contract differs from a futures contract in that is it usually nonstandardized. 
D)  a and c only. 
E)  All of the above. 
A)  A forward contract, just like a futures contract, is an agreement for the future delivery of something at a specified price at the end of a designated period of time. 
B)  A forward contact, just like a futures contract, is traded on an exchange floor. 
C)  A forward contract differs from a futures contract in that is it usually nonstandardized. 
D)  a and c only. 
E)  All of the above.

Question 5

Financial futures can be classified as:

Accepted Answer

A)  Stock index futures. 
B)  Interest rate futures. 
C)  Commodity futures. 
D)  Currency futures. 
E)  a, b and d. 
A)  Stock index futures. 
B)  Interest rate futures. 
C)  Commodity futures. 
D)  Currency futures. 
E)  a, b and d.

Question 6

Explain the mark-to-market and margin requirements of a futures contract and use an example.

Accepted Answer

a. Daily settlement.
b. Profit

Question 7

When a position is first taken in a futures contract, the investor must deposit a minimum dollar amount per contract as specified by:

Accepted Answer

A)  The Federal Reserve. 
B)  The pit trader. 
C)  The exchange. 
D)  An informal agreement between the parties involved. 
E)  None of the above. 
A)  The Federal Reserve. 
B)  The pit trader. 
C)  The exchange. 
D)  An informal agreement between the parties involved. 
E)  None of the above.

Question 8

A party to a futures contract can liquidate the position by:

Accepted Answer

A)  Taking an offsetting position in the same contract. 
B)  Waiting until the settlement date. 
C)  Walking away from the futures contract. 
D)  a and b only. 
E)  All of the above. 
A)  Taking an offsetting position in the same contract. 
B)  Waiting until the settlement date. 
C)  Walking away from the futures contract. 
D)  a and b only. 
E)  All of the above.

Question 9

Compare and contrast futures and forwards.

Accepted Answer

a. Trading.
b. Regulation.
c.

Question 10

When an investor takes a position in the market by buying a futures contract, the investor is said to be in a:

Accepted Answer

A)  Long position. 
B)  Short position. 
C)  Short futures. 
D)  Hedge position. 
E)  None of the above. 
A)  Long position. 
B)  Short position. 
C)  Short futures. 
D)  Hedge position. 
E)  None of the above.

Question 11

The criticism of futures contracts that their introduction will increase the price volatility of the underlying asset in the cash market is referred to as:

Accepted Answer

A)  Asset volatility hypothesis. 
B)  Speculation. 
C)  Destabilization hypothesis. 
D)  Hedging. 
E)  None of the above. 
A)  Asset volatility hypothesis. 
B)  Speculation. 
C)  Destabilization hypothesis. 
D)  Hedging. 
E)  None of the above.

Question 12

The amount necessary to bring the equity in the account back to its initial margin level is called the variation margin.

Accepted Answer

A) True 
 B)False

Question 13

Futures contracts are traded:

Accepted Answer

A)  In the interbank market. 
B)  In the OTC market. 
C)  On an organized exchange. 
D)  Electronically. 
E)  None of the above. 
A)  In the interbank market. 
B)  In the OTC market. 
C)  On an organized exchange. 
D)  Electronically. 
E)  None of the above.

Question 14

Most financial futures contracts have settlement dates in March, June, September, and December.

Accepted Answer

A) True 
 B)False

Question 15

At the end of each trading day, futures contracts are:

Accepted Answer

A)  Delivered. 
B)  Marked-to-market. 
C)  Liquidated. 
D)  Closed out. 
E)  None of the above. 
A)  Delivered. 
B)  Marked-to-market. 
C)  Liquidated. 
D)  Closed out. 
E)  None of the above.

Question 16

The futures price is:

Accepted Answer

A)  The price paid for the futures contract. 
B)  The price at which the parties in a futures contract agree to transact in the future. 
C)  The present value of all expected future cash benefits. 
D)  The cost of the futures contract today. 
E)  None of the above. 
A)  The price paid for the futures contract. 
B)  The price at which the parties in a futures contract agree to transact in the future. 
C)  The present value of all expected future cash benefits. 
D)  The cost of the futures contract today. 
E)  None of the above.

Question 17

A daily price limit sets the minimum and maximum price at which the futures contract may trade during its life.

Accepted Answer

A) True 
 B)False

Question 18

A futures contract is a firm legal agreement between a buyer and a seller in which:

Accepted Answer

A)  The buyer agrees to take delivery of an asset at a specified price at the end of a designated period of time. 
B)  The value of the futures contract is derived from the value of the underlying instrument. 
C)  The seller agrees to make delivery of an asset at a specified price at the end of a designated period of time. 
D)  a and c only. 
E)  All of the above. 
A)  The buyer agrees to take delivery of an asset at a specified price at the end of a designated period of time. 
B)  The value of the futures contract is derived from the value of the underlying instrument. 
C)  The seller agrees to make delivery of an asset at a specified price at the end of a designated period of time. 
D)  a and c only. 
E)  All of the above.

Question 19

Discuss the principles of hedging and explain the risks associated with hedging.

Accepted Answer

a. Perfect hedge.
b.

Question 20

The major function of futures markets is to transfer price risk from hedgers to speculators.

Accepted Answer

A) True 
 B)False

Exam 10: Introduction to Financial Futures Markets

In general, less than 2% of futures contracts are settled by delivery.

Locals are brokers who:

The minimum level by which an investor's equity position may fall as a result of unfavorable price movement before the investor is required to deposit additional margin is called:

Which of the following statements is most correct?

Financial futures can be classified as:

Explain the mark-to-market and margin requirements of a futures contract and use an example.

When a position is first taken in a futures contract, the investor must deposit a minimum dollar amount per contract as specified by:

A party to a futures contract can liquidate the position by:

Compare and contrast futures and forwards.

When an investor takes a position in the market by buying a futures contract, the investor is said to be in a:

The criticism of futures contracts that their introduction will increase the price volatility of the underlying asset in the cash market is referred to as:

The amount necessary to bring the equity in the account back to its initial margin level is called the variation margin.

Futures contracts are traded:

Most financial futures contracts have settlement dates in March, June, September, and December.

At the end of each trading day, futures contracts are:

The futures price is:

A daily price limit sets the minimum and maximum price at which the futures contract may trade during its life.

A futures contract is a firm legal agreement between a buyer and a seller in which:

Discuss the principles of hedging and explain the risks associated with hedging.

The major function of futures markets is to transfer price risk from hedgers to speculators.

Introduction

Overview of Market Participants and Financial Innovation

Depository Institutions

Insurance Companies

Asset Management Firms

Investment Banking Firms

Primary and Secondary Markets

Risk and Return Theories: I

Risk and Return Theories: II

Introduction to Options Markets

Introduction to the Swaps, Caps, and Floors Markets

Common Stock Market: I

Common Stock Market: II

Stock Options Market

The Market for Stock Index Products and Other Equity Derivatives

The Theory and Structure of Interest Rates

Valuation of Debt Contracts and Their Price Volatility Characteristics

The Term Structure of Interest Rates

Money Markets

Treasury and Agency Securities Markets

Corporate Senior Instruments Markets: I

Corporate Senior Instruments Markets: II

Municipal Securities Markets

The Residential Mortgage Market

The Market for Residential Mortgage-Backed Securities

Market for Asset-Backed Securities

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

International Bond Markets

International Bond Markets

Market for Interest Rate Risk Transfer Vehicles: OTC Instruments

The Market for Foreign Exchange and Risk Control Instruments

Filters