Futures Contracts

Futures Contracts

FIN 320 Week 9 Quiz – Strayer

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Futures Contracts

Quiz 7 Chapter 17 and 18
Chapter 17: ___________________________________________________________________________
1. Today’s futures markets are dominated by trading in _______ contracts.

A.  metals

B.  agriculture

C.  financial

D.  commodity

2. A person with a long position in a commodity futures contract wants the price of the commodity to ______.

A.  decrease substantially

B.  increase substantially

C.  remain unchanged

D.  increase or decrease substantially

3. If an asset price declines, the investor with a _______ is exposed to the largest potential loss.

A.  long call option

B.  long put option

C.  long futures contract

D.  short futures contract

Futures Contracts

4. The clearing corporation has a net position equal to ______.
A.  the open interest

B.  the open interest times 2

C.  the open interest divided by 2

D.  zero

5. The S&P 500 Index futures contract is an example of a(n) ______ delivery contract. The pork bellies contract is an example of a(n) ______ delivery contract.

A.  cash; cash

B.  cash; actual

C.  actual; cash

D.  actual; actual

6. Which one of the following contracts requires no cash to change hands when initiated?

A.  Listed put option

B.  Short futures contract

C.  Forward contract

D.  Listed call option

7. Synthetic stock positions are commonly used by ______ because of their ______.

A.  market timers; lower transaction cost

B.  banks; lower risk

C.  wealthy investors; tax treatment

D.  money market funds; limited exposure

8. _____________ are likely to close their positions before the expiration date, while ____________ are likely to make or take delivery.

A.  Investors; regulators

B.  Hedgers; speculators

C.  Speculators; hedgers

D.  Regulators; investors

9. Futures contracts have many advantages over forward contracts except that _________.

A.  futures positions are easier to trade

B.  futures contracts are tailored to the specific needs of the investor

C.  futures trading preserves the anonymity of the participants

D.  counterparty credit risk is not a concern on futures

10. An investor who is hedging a corporate bond portfolio using a T-bond futures contract is said to have _______.

A.  an arbitrage

B.  a cross-hedge

C.  an over hedge

D.  a spread hedge

11. The open interest on silver futures at a particular time is the number of __________.

A.  all outstanding silver futures contracts

B.  long and short silver futures positions counted separately on a particular trading day

C.  silver futures contracts traded during the day

D.  silver futures contracts traded the previous day

Futures Contracts
12. An investor who goes short in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset.

A.  pay; pay

B.  pay; receive

C.  receive; pay

D.  receive; receive

13. An investor who goes long in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset.

A.  pay; pay

B.  pay; receive

C.  receive; pay

D.  receive; receive

14. The advantage that standardization of futures contracts brings is that _____ is improved because ____________________.

A.  liquidity; all traders must trade a small set of identical contracts

B.  credit risk; all traders understand the risk of the contracts

C.  pricing; convergence is more likely to take place with fewer contracts

D.  trading cost; trading volume is reduced

15. The fact that the exchange is the counterparty to every futures contract issued is important because it eliminates _________ risk.

A.  market

B.  credit

C.  interest rate

D.  basis

16. In the futures market the short position’s loss is ___________ the long position’s gain.

A.  greater than

B.  less than

C.  equal to

D.  sometimes less than and sometimes greater than

17. A wheat farmer should __________ in order to reduce his exposure to risk associated with fluctuations in wheat prices.

A.  sell wheat futures

B.  buy wheat futures

C.  buy a contract for delivery of wheat now and sell a contract for delivery of wheat at harvest time

D.  sell wheat futures if the basis is currently positive and buy wheat futures if the basis is currently negative

18. Which of the following provides the profit to a long position at contract maturity?

A.  Original futures price – Spot price at maturity

B.  Spot price at maturity – Original futures price

C.  Zero

D.  Basis

19. You take a long position in a futures contract of one maturity and a short position in a contract of a different maturity, both on the same commodity. This is called a __________.

A.  cross-hedge

B.  reversing trade

C.  spread position

D.  straddle

20. Interest rate futures contracts exist for all of the following except __________.

A.  federal funds

B.  Eurodollars

C.  banker’s acceptances

D.  repurchase agreements

21. Initial margin is usually set in the region of ________ of the total value of a futures contract.

A.  5%-15%

B.  10%-20%

C.  15%-25%

D.  20%-30%

22. Margin must be posted by ________.

A.  buyers of futures contracts only

B.  sellers of futures contracts only

C.  both buyers and sellers of futures contracts

D.  speculators only

Futures Contracts
23. The daily settlement of obligations on futures positions is called _____________.

A.  a margin call

B.  marking to market

C.  a variation margin check

D.  the initial margin requirement

24. Which of the following provides the profit to a short position at contract maturity?

A.  Original futures price – Spot price at maturity

B.  Spot price at maturity – Original futures price

C.  Zero

D.  Basis

25. Margin requirements for futures contracts can be met by ______________.

A.  cash only

B.  cash or highly marketable securities such as Treasury bills

C.  cash or any marketable securities

D.  cash or warehouse receipts for an equivalent quantity of the underlying commodity

26. An established value below which a trader’s margin may not fall is called the ________.

A.  daily limit

B.  daily margin

C.  maintenance margin

D.  convergence limit

27. Which one of the following is a true statement?

A.  A margin deposit can be met only by cash.

B.  All futures contracts require the same margin deposit.

C.  The maintenance margin is the amount of money you post with your broker when you buy or sell a futures contract.

D.  The maintenance margin is the value of the margin account below which the holder of a futures contract receives a margin call.

28. At maturity of a futures contract, the spot price and futures price must be approximately the same because of __________.

A.  marking to market

B.  the convergence property

C.  the open interest

D.  the triple witching hour

29. A futures contract __________.

A.  is a contract to be signed in the future by the buyer and the seller of a commodity

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.  is an agreement to buy or sell a specified amount of an asset at whatever the spot price happens to be on the expiration date of the contract

D.  gives the buyer the right, but not the obligation, to buy an asset some time in the future

Futures Contracts
30. Which one of the following exploits differences between actual future prices and their theoretically correct parity values?

A.  Index arbitrage

B.  Marking to market

C.  Reversing trades

D.  Settlement transactions

31. Which one of the following refers to the daily settlement of obligations on future positions?

A.  Marking to market

B.  The convergence property

C.  The open interest

D.  The triple witching hour

32. The most actively traded interest rate futures contract is for ___________.

A.  LIBOR

B.  Treasury bills

C.  Eurodollars

D.  Treasury bonds

33. The CME weather futures contract is an example of ______________.

A.  a cash-settled contract

B.  an agricultural contract

C.  a financial future

D.  a commodity future

34. Single stock futures, as opposed to stock index futures, are _______________.

A.  not yet being offered by any exchanges

B.  offered overseas but not in the United States

C.  currently trading on One Chicago, a joint venture of several exchanges

D.  scheduled to begin trading in 2015 on several exchanges

35. You are currently long in a futures contract. You instruct a broker to enter the short side of a futures contract to close your position. This is called __________.

A.  a cross-hedge

B.  a reversing trade

C.  a speculation

D.  marking to market

36. A company that mines bauxite, an aluminum ore, decides to short aluminum futures. This is an example of __________ to limit its risk.

A.  cross-hedging

B.  long hedging

C.  spreading

D.  speculating

37. Futures markets are regulated by the __________.

A.  CFA Institute

B.  CFTC

C.  CIA

D.  SEC

38. A hog farmer decides to sell hog futures. This is an example of __________ to limit risk.

A.  cross-hedging

B.  short hedging

C.  spreading

D.  speculating

39. On May 21, 2012, you could have purchased a futures contract from Intrade for a price of $5.70 that would pay you $10 if Barack Obama won the 2012 presidential election. This tells you _____.

A.  that the market believed that Obama had a 57% chance of winning

B.  that the market believed that Obama would not win the election

C.  nothing about the market’s belief concerning the odds of Obama winning

D.  that the market believed Obama’s chances of winning were about 43%

 

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