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Flashcards in ch17 kawncehpts Deck (37):
1

1., Today's futures markets are dominated by trading in _______ contracts.


A. , metals

B. , agriculture

C. , financial

D. , commodity

C. , financial

2

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

B. , increase substantially

3

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

C. , long futures contract

4

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

D. , zero

5

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

B. , cash; actual

6

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

C. , Forward contract

7

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

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

8

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

A. , all outstanding silver futures contracts

9


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

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

10

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

B. , credit

11

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%

A. , 5%-15%

12

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

C. , both buyers and sellers of futures contracts

13

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

B. , marking to market

14



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

B. , cash or highly marketable securities such as Treasury bills

15

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

C. , maintenance margin

16

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.

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

17

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

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

18

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

A. , Marking to market

19

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

A. , a cash-settled contract

20

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

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

21

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

B. , a reversing trade

22

37., Futures markets are regulated by the __________.


A. , CFA Institute

B. , CFTC

C. , CIA

D. , SEC

B. , CFTC

23

41., Forward contracts _________ traded on an organized exchange, and futures contracts __________ traded on an organized exchange.


A. , are; are

B. , are; are not

C. , are not; are

D. , are not; are not

C. , are not; are

24

44., Investors who take short positions in futures contract agree to ___________ delivery of the commodity on the delivery date, and those who take long positions agree to __________ delivery of the commodity.


A. , make; make

B. , make; take

C. , take; make

D. , take; take

B. , make; take

25

48., The __________ is among the world's largest derivatives exchanges and operates a fully electronic trading and clearing platform.


A. , CBOE

B. , CBOT

C. , CME

D. , Eurex

D. , Eurex

26

51., An investor establishes a long position in a futures contract now (time 0) and holds the position until maturity (time T). The sum of all daily settlements will be __________.


A. , F0 - FT

B. , F0 - S0

C. , FT - F0

D. , FT - S0

C. , FT - F0

subscript letters

27

53., Approximately __________ of futures contracts result in actual delivery.


A. , 0%

B. , less than 1% to 3%

C. , less than 5% to 15%

D. , less than 60% to 80%

B. , less than 1% to 3%

28

55., At year-end, taxes on a futures position _______________.


A. , must be paid if the position has been closed out

B. , must be paid if the position has not been closed out

C. , must be paid regardless of whether the position has been closed out or not

D. , need not be paid if the position supports a hedge

C. , must be paid regardless of whether the position has been closed out or not

29

78., The use of leverage is practiced in the futures markets due to the existence of _________.


A. , banks

B. , brokers

C. , clearinghouses

D. , margin

D. , margin

30

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

B. , the convergence property

31

46., Futures contracts are said to exhibit the property of convergence because _______________.


A. , the profits from long positions and short positions must ultimately be equal

B. , the profits from long positions and short positions must ultimately net to zero

C. , price discrepancies would open arbitrage opportunities for investors who spot them

D. , the futures price and spot price of any asset must ultimately net to zero

C. , price discrepancies would open arbitrage opportunities for investors who spot them

32

49., Violation of the spot-futures parity relationship results in _______________.


A. , fines and other penalties imposed by the SEC

B. , arbitrage opportunities for investors who spot them

C. , suspension of delivery privileges

D. , suspension of trading

B. , arbitrage opportunities for investors who spot them

33

50., When dividend-paying assets are involved, the spot-futures parity relationship can be stated as _________________.


A. , F1 = S0(1 + rf)

B. , F0 = S0(1 + rf - d)T

C. , F0 = S0(1 + rf + d)T

D. , F0 = S0(1 + rf)T

B. , F0 = S0(1 + rf - d)T

34

61., At contract maturity the basis should equal ___________.


A. , 1

B. , 0

C. , the risk-free interest rate

D. , -1

B. , 0

35

64., A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1-year risk-free rate is 3%.

Based on the above data, which of the following set of transactions will yield positive riskless arbitrage profits?


A. , Buy gold in the spot with borrowed money, and sell the futures contract.

B. , Buy the futures contract, and sell the gold spot and invest the money earned.

C. , Buy gold spot with borrowed money, and buy the futures contract.

D. , Buy the futures contract, and buy the gold spot using borrowed money.

A. , Buy gold in the spot with borrowed money, and sell the futures contract.


Actual F0 = $1,645, but according to spot-futures parity it should be $1,639.76, so the futures contract is overpriced. Sell futures today, and buy gold spot with borrowed money.

36

72., If the risk-free rate is greater than the dividend yield, then we know that _______________.


A. , the futures price will be higher as contract maturity increases

B. , F0 ST

D. , arbitrage profits are possible

A. , the futures price will be higher as contract maturity increases

37

81., The price of a corn futures contract is $2.65 per bushel when the contract is issued, and the commodity spot price is $2.55. When the contract expires, the two prices are identical. What principle is represented by this price behavior?


A. , Convergence

B. , Margin

C. , Basis

D. , Volatility

A. , Convergence