Deck 8: The Structure of Forward and Futures Markets

Question 1

Variation margin is which of the following?

A)the difference in margin between hedger and speculator
B)margin differences according to trading style
C)margin deposited as a result of marking-to-market
D)margin set by the variability of a futures price
E)none of the above

Answer 1

C

Question 2

Which of the following contract terms is not set by the futures exchange?

A)the dates on which delivery can occur
B)the expiration months
C)the deliverable commodities
D)the size of the contract
E)the price

Answer 2

E

Question 3

Which of the following is not a forward contract?

A)a long-term employment contract at a fixed salary
B)an automobile lease non-cancelable for three years
C)a rain check
D)a signed contract to buy a house in six months
E)none of the above

Answer 3

C

Question 4

What are circuit breakers?

A)rules that stop trading when futures are about to expire
B)a system that shuts down the exchange computer during periods of abnormal volume
C)limits on the number of contracts that can be traded on high volume days
D)rules that limit the number of contracts a speculator can hold
E)none of the above

Question 5

Most futures contracts are closed by
A)delivery

A)none of the above
B)offset
C)exercise
D)default

Question 6

The number of futures contracts outstanding is called the

A)reportable position
B)minimum volume
C)open interest
D)spread position
E)none of the above

Question 7

Trading as both a broker and a dealer is called

A)dual trading
B)spreading
C)scalping
D)arbitraging
E)none of the above

Question 8

The trading procedure on the floor of the futures exchange is referred to as

A)against actuals
B)open interest
C)open outcry
D)index participation
E)none of the above

Question 9

Which of the following is a trader on the floor of the futures exchange?

A)introducing broker
B)commission broker
C)commodity trading advisor
D)commodity pool operator
E)none of the above

Question 10

Which of the following is the most actively traded U.S.futures contract?

A)S&P 500 Index
B)crude oil
C)Treasury bonds
D)Wheat
E)none of the above

Question 11

Which of the following duties is not performed by the clearinghouse?

A)holding margin deposits
B)guaranteeing performance of buyer and writer
C)maintaining records of transactions
D)lending money to meet margin requirements
E)none of the above

Question 12

Which of the following organizations has the ultimate regulatory authority in the futures industry?

A)National Futures Association
B)Commodity Futures Trading Commission
C)Commodity Exchange Authority
D)Securities and Exchange Commission
E)none of the above

Question 13

Margin in a futures transaction differs from margin in a stock transaction because

A)stock transactions are much smaller
B)delivery occurs immediately in a stock transaction
C)no money is borrowed in a futures transaction
D)futures are much more volatile
E)none of the above

Question 14

One of the first automated trading systems that matched bids and offers implemented at the CME is called

A)COMEX
B)GLOBEX
C)LIFFE
D)CFTC
E)none of the above

Question 15

Which of the following is not a futures exchange?

A)Minneapolis Grain Exchange
B)CBOE Futures Exchange
C)Chicago Climate Exchange
D)Kansas City Board of Trade
E)MidAmerica Commodity Exchange

Question 16

If the initial margin is $5,000,the maintenance margin is $3,500 and your balance is $3,100,how much must you deposit?

A)$1,500
B)$400
C)$1,900
D)0
E)none of the above

Question 17

Which of the following is not a method of terminating a futures contract?

A)offset
B)delivery
C)exchange for physicals
D)scalping
E)none of the above

Question 18

Most forward contracts are closed by

A)delivery
B)offset
C)exercise
D)default
E)none of the above

Question 19

Where did the U.S.futures market originate?
A)Chicago

A)none of the above
B)Kansas
C)New York
D)Minneapolis

Question 20

If the initial margin is $5,000,the maintenance margin is $3,500 and your balance is $4,000,how much must you deposit?

A)$6,000
B)$1,500
C)$9,000
D)nothing
E)none of the above

Question 21

A limit move is when a futures price reaches its all time high or low price.

Question 22

One of the advantages of forward markets is
A)performance is guaranteed by the G-30

A)trading is less costly and governed by more rules
B)none of the above
B)trading is conducted in the evening over computers
C)the contracts are private and customized

Question 23

Futures contracts are similar to forward contracts because they both represent a commitment to buy something at a future time at a fixed price.

Question 24

A futures contract covers 5000 pounds with a minimum price change of $0.01 is sold for $31.60 per pound.If the initial margin is $2,525 and the maintenance margin is $1,000,at what price would there be a margin call?

A)31.91
B)32.11
C)31.29
D)31.09
E)31.80

Question 25

Which is the most active group of futures?

A)energy
B)agriculture
C)currency
D)financials
E)none of the above

Question 26

The earliest financial futures contracts were futures on foreign currencies.

Question 27

Very few futures contracts are terminated in delivery of the underlying commodity or security.

Question 28

The most actively traded futures contract on a short-term financial instrument is Treasury bill futures.

Question 29

Scalping is a colorful term used to describe a futures trading style that involves aggressive,emotional trading.

Question 30

One attraction of options on futures is that they trade side-by-side with the futures.

Question 31

Locals are futures traders who are in business for themselves.

Question 32

Stock index futures contracts are terminated by delivery the portfolio of stocks represented by the index.

Question 33

Forward contracts are regulated by the Commodity Forward Trading Commission.

Question 34

Options on futures have been trading since

A)1973
B)1982
C)1966
D)1936
E)none of the above

Question 35

Futures trades are executed in the pit.

Question 36

Credit risk is handled in forward markets by daily marking-to-market.

Question 37

Many futures contracts specify that there are several grades of a commodity that are acceptable for delivery.

Question 38

The clearinghouse is the middleman in a futures trade.

Question 39

Which of the following is not a type of futures trader?

A)scalpers
B)arbitrageurs
C)profit-takers
D)hedgers
E)day traders

Question 40

When futures accounts are marked-to-market,an account balance below the maintenance margin must be brought up to the initial margin.

Question 41

Futures funds have typically provided outstanding returns to their investors.

Question 42

Position traders are futures traders who take very large positions.

Question 43

There are no futures contracts on the Dow Jones Industrial Average.

Question 44

A hedge fund is a very risky form of investment.

Question 45

The largest futures exchange in the United States is the Chicago Mercantile Exchange.

Question 46

The daily settlement procedure is a major difference between futures contracts and forward contracts.

Question 47

Firms that solicit futures trading business from the public are called Futures Commission Merchants.

Question 48

The federal regulator of the futures markets is the National Futures Association.

Question 49

One party to a futures transaction does not bear the risk that the other party will default.

Question 50

Because futures markets do not have designated market makers,there is no such thing as a bid-ask spread.