Question 1

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. 
E)  None of the options are correct. 
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. 
E)  None of the options are correct. C

Question 2

On January 1, you bought one April S&P 500 index futures contract at a futures price of 1,420. If, on February 1, the April futures price was 1,430, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Accepted Answer

A)  $2,500 loss 
B)  $10 loss 
C)  $2,500 profit 
D)  $10 profit 
A)  $2,500 loss 
B)  $10 loss 
C)  $2,500 profit 
D)  $10 profit C

Question 3

Which of the following is true about profits from futures contracts?

Accepted Answer

A)  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. 
B)  It is possible for both the holder of the long position and the holder of the short position to earn a profit. 
C)  The clearinghouse makes most of the profit. 
D)  The amount that the holder of the long position gains must equal the amount that the holder of the short position loses. 
E)  Holders of short positions can recognize profits by making delivery early. 
A)  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. 
B)  It is possible for both the holder of the long position and the holder of the short position to earn a profit. 
C)  The clearinghouse makes most of the profit. 
D)  The amount that the holder of the long position gains must equal the amount that the holder of the short position loses. 
E)  Holders of short positions can recognize profits by making delivery early. D

Question 4

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. 
E)  None of the options are correct. 
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. 
E)  None of the options are correct.

Question 5

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 6

Agricultural futures contracts are actively traded on

Accepted Answer

A)  milk. 
B)  orange juice. 
C)  lumber. 
D)  milk and orange juice. 
E)  All of the options are correct. 
A)  milk. 
B)  orange juice. 
C)  lumber. 
D)  milk and orange juice. 
E)  All of the options are correct.

Question 7

If you determine that the DAX-30 Index futures is overpriced 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)  selling DAX-30 Index futures and buying 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)  selling DAX-30 Index futures and buying all the stocks in the DAX-30.

Question 8

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. 
E)  All of the options are correct. 
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. 
E)  All of the options are correct.

Question 9

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

Accepted Answer

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

Question 10

Foreign currency futures contracts are actively traded on the

Accepted Answer

A)  Japanese yen. 
B)  Australian dollar. 
C)  Brazilian real. 
D)  Japanese yen and Australian dollar. 
E)  All of the options are correct. 
A)  Japanese yen. 
B)  Australian dollar. 
C)  Brazilian real. 
D)  Japanese yen and Australian dollar. 
E)  All of the options are correct.

Question 11

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 12

Given a stock index with a value of $1,000, an anticipated dividend of $30, and a risk-free rate of 6%, what should be the value of one futures contract on the index?

Accepted Answer

A)  $943.40 
B)  $970.00 
C)  $1,030.00 
D)  $915.09 
E)  $1,000.00 
A)  $943.40 
B)  $970.00 
C)  $1,030.00 
D)  $915.09 
E)  $1,000.00

Question 13

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

Accepted Answer

A)  sell Treasury bond futures. 
B)  take a long position in wheat futures. 
C)  buy S&P 500 Index futures. 
D)  take a long position in Treasury bond futures. 
E)  None of the options are correct. 
A)  sell Treasury bond futures. 
B)  take a long position in wheat futures. 
C)  buy S&P 500 Index futures. 
D)  take a long position in Treasury bond futures. 
E)  None of the options are correct.

Question 14

Financial futures contracts are actively traded on which of the following indices?

Accepted Answer

A)  The S&P 500 Index 
B)  The New York Stock Exchange Index 
C)  The Nikkei Index 
D)  The Dow Jones Industrial Index 
E)  All of the options are correct. 
A)  The S&P 500 Index 
B)  The New York Stock Exchange Index 
C)  The Nikkei Index 
D)  The Dow Jones Industrial Index 
E)  All of the options are correct.

Question 15

Which of the following statements regarding delivery is false? I) Most futures contracts result in actual delivery.
II) Only 1% to 3% of futures contracts result in actual delivery.
III) Only 15% of futures contracts result in actual delivery.

Accepted Answer

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

Question 16

On January 1, you sold one April S&P 500 Index futures contract at a futures price of 1,420. If, on February 1, the April futures price was 1,430, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Accepted Answer

A)  $2,500 loss 
B)  $10 loss 
C)  $2,500 profit 
D)  $10 profit 
A)  $2,500 loss 
B)  $10 loss 
C)  $2,500 profit 
D)  $10 profit

Question 17

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 18

A futures contract

Accepted Answer

A)  is an agreement to buy or sell a specified amount of an asset at the spot price on the expiration date of the contract. 
B)  is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract. 
C)  gives the buyer the right, but not the obligation, to buy an asset sometime in the future. 
D)  is a contract to be signed in the future by the buyer and the seller of the commodity. 
E)  None of the options are correct. 
A)  is an agreement to buy or sell a specified amount of an asset at the spot price on the expiration date of the contract. 
B)  is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract. 
C)  gives the buyer the right, but not the obligation, to buy an asset sometime in the future. 
D)  is a contract to be signed in the future by the buyer and the seller of the commodity. 
E)  None of the options are correct.

Question 19

You hold one long corn futures contract that expires in April. To close your position in corn futures before the delivery date you must

Accepted Answer

A)  buy one May corn futures contract. 
B)  buy two April corn futures contract. 
C)  sell one April corn futures contract. 
D)  sell one May corn futures contract. 
A)  buy one May corn futures contract. 
B)  buy two April corn futures contract. 
C)  sell one April corn futures contract. 
D)  sell one May corn futures contract.

Question 20

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.

Exam 22: Futures Markets

In a futures contract, the futures price is

On January 1, you bought one April S&P 500 index futures contract at a futures price of 1,420. If, on February 1, the April futures price was 1,430, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Which of the following is true about profits from futures contracts?

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

Agricultural futures contracts are actively traded on

Agricultural futures contracts are actively traded on

If you determine that the DAX-30 Index futures is overpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

The process of marking to market

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

Foreign currency futures contracts are actively traded on the

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.

Given a stock index with a value of $1,000, an anticipated dividend of $30, and a risk-free rate of 6%, what should be the value of one futures contract on the index?

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

Financial futures contracts are actively traded on which of the following indices?

Which of the following statements regarding delivery is false? I) Most futures contracts result in actual delivery. II) Only 1% to 3% of futures contracts result in actual delivery. III) Only 15% of futures contracts result in actual delivery.

On January 1, you sold one April S&P 500 Index futures contract at a futures price of 1,420. If, on February 1, the April futures price was 1,430, what would be your profit (loss) if you closed your position (without considering transactions costs)?

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.

A futures contract

You hold one long corn futures contract that expires in April. To close your position in corn futures before the delivery date you must

Speculators may use futures markets rather than spot markets because

The Investment Environment

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

Behavioral 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

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