Question 1

Speculators in the futures markets

Accepted Answer

A)  make the market more volatile. 
B)  contribute liquidity to the market. 
C)  engage mainly in short sales. 
D)  serve no real economic function. 
A)  make the market more volatile. 
B)  contribute liquidity to the market. 
C)  engage mainly in short sales. 
D)  serve no real economic function.

Question 2

Explain the difference between a forward contract and a futures contract.

Accepted Answer

A forward contract is an individual agre

Question 3

The cumulative number of futures contracts that are not offset at any point in time is called:

Accepted Answer

A)  margin. 
B)  open interest. 
C)  hedged position. 
D)  marked to the market position. 
A)  margin. 
B)  open interest. 
C)  hedged position. 
D)  marked to the market position.

Question 4

One difference between a hedger and a speculator is that the hedger

Accepted Answer

A)  may have either a profit or a loss. 
B)  may not close out his position by taking an opposite position. 
C)  does not have to put up margin. 
D)  faces a risk without the futures contract. 
A)  may have either a profit or a loss. 
B)  may not close out his position by taking an opposite position. 
C)  does not have to put up margin. 
D)  faces a risk without the futures contract.

Question 5

Approximately what percentage of futures contracts is closed by offset before the contract expires:

Accepted Answer

A)  25. 
B)  50 
C)  95. 
D)  75. 
A)  25. 
B)  50 
C)  95. 
D)  75.

Question 6

The National Futures Association is the federal agency which regulates the futures markets.

Accepted Answer

A) True 
 B)False

Question 7

Investors can speculate on interest rate declines by purchasing interest rate futures.

Accepted Answer

A) True 
 B)False

Question 8

The initial margin requirement on an SSF contract is 15 percent.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following exchanges claims that its 3,600 members trade 50 different futures and options products by open auction and electronically?:

Accepted Answer

A)  Chicago Board Options Exchange. 
B)  Chicago Board of Trade. 
C)  Chicago Mercantile Exchange. 
D)  Globex. 
A)  Chicago Board Options Exchange. 
B)  Chicago Board of Trade. 
C)  Chicago Mercantile Exchange. 
D)  Globex.

Question 10

What economic functions are fulfilled by futures?

Accepted Answer

Forward contracts have long allowed two

Question 11

How often are futures contracts marked to market?

Accepted Answer

A)  daily 
B)  weekly 
C)  monthly 
D)  quarterly 
A)  daily 
B)  weekly 
C)  monthly 
D)  quarterly

Question 12

Select the CORRECT statement regarding basis risk associated with futures.

Accepted Answer

A)  Basis risk can be completely eliminated. 
B)  Although the basis fluctuates over time, it can be precisely predicted. 
C)  The basis must be zero on the maturity date of the contract. 
D)  A hedge will reduce risk as long as basis fluctuations are positive. 
A)  Basis risk can be completely eliminated. 
B)  Although the basis fluctuates over time, it can be precisely predicted. 
C)  The basis must be zero on the maturity date of the contract. 
D)  A hedge will reduce risk as long as basis fluctuations are positive.

Question 13

Do options on futures serve any economic purpose or are they just sophisticated
games?

Accepted Answer

Options on futures transfer ri

Question 14

Futures contracts are handled by specialists on futures exchanges.

Accepted Answer

A) True 
 B)False

Question 15

Investors in futures can take either a long, short, or neutral position.

Accepted Answer

A) True 
 B)False

Question 16

Compare the obligation entered into in a futures contract to the obligation in an options contract.

Accepted Answer

The buyer in an options contract has the

Question 17

When trading futures, margin

Accepted Answer

A)  is seldom used. 
B)  indicates that credit is being extended. 
C)  is a down payment. 
D)  in effect, is a performance bond. 
A)  is seldom used. 
B)  indicates that credit is being extended. 
C)  is a down payment. 
D)  in effect, is a performance bond.

Question 18

What is the difference between hedgers and speculators in the futures markets?

Accepted Answer

Hedgers face the risk of buying or selli

Question 19

Basis =

Accepted Answer

A)  cash price 
B)  futures price 
C)  cash price + futures price 
D)  cash price - futures price 
A)  cash price 
B)  futures price 
C)  cash price + futures price 
D)  cash price - futures price

Question 20

Futures are essentially standardized forward contracts.

Accepted Answer

A) True 
 B)False

Exam 20: Understanding Derivative Securities: Futures

Speculators in the futures markets

Explain the difference between a forward contract and a futures contract.

The cumulative number of futures contracts that are not offset at any point in time is called:

One difference between a hedger and a speculator is that the hedger

Approximately what percentage of futures contracts is closed by offset before the contract expires:

The National Futures Association is the federal agency which regulates the futures markets.

Investors can speculate on interest rate declines by purchasing interest rate futures.

The initial margin requirement on an SSF contract is 15 percent.

Which of the following exchanges claims that its 3,600 members trade 50 different futures and options products by open auction and electronically?:

What economic functions are fulfilled by futures?

How often are futures contracts marked to market?

Select the CORRECT statement regarding basis risk associated with futures.

Do options on futures serve any economic purpose or are they just sophisticated games?

Futures contracts are handled by specialists on futures exchanges.

Investors in futures can take either a long, short, or neutral position.

Compare the obligation entered into in a futures contract to the obligation in an options contract.

When trading futures, margin

What is the difference between hedgers and speculators in the futures markets?

Basis =

Futures are essentially standardized forward contracts.

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