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Exam 15: Futures and Risk Management

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Question 31

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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

E) None of the above
F) A) and B)

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Question 32

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You own a $15 million bond portfolio with a modified duration of 11 years and you want to limit your risk but institutional constraints prohibit trading the bond portfolio. T-bond futures are available with a modified duration of the deliverable instrument of 8 years. The futures are priced at $105 000. The proper hedge ratio to use is ________.

A) 104
B) 143
C) 196
D) 213

E) B) and C)
F) A) and B)

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Question 33

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The Student Loan Marketing Association (SLMA) has short term student loans funded by long-term debt. To hedge out this interest rate risk SLMA could ________. I. engage in a swap to pay fixed and receive variable interest payments II. engage in a swap to pay variable and receive fixed interest payments III. buy T-bond futures IV. sell T-bond futures

The fact that the exchange is the counter-party to every futures contract issued is important because it eliminates ________ risk.

At contract maturity the basis should equal ________.

Margin requirements for futures contracts can be met by ________.

A long hedge is a simultaneous ________ position in the spot market and a ________ position in the futures market.

An investor would want to ________ to hedge a long position in treasury bonds.

The spot price for is $650. The dividend yield on the S&P 500 is 2.5%. The risk-free interest rate is 5%. The futures price for gold for a one year contract should be ________.

A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12 500 bushels of corn and sold futures contracts on 10 000 bushels of corn. What are the farmer's proceeds from the sale of corn?

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

The current level of the S&P 500 is 1250. The dividend yield on the S&P 500 is 3%. The risk-free interest rate is 6%. The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be ________.

A bank has made long-term fixed rate mortgages and has financed them with short-term deposits. To hedge out the bank's interest rate risk they could ________.

A hog farmer decides to sell hog futures. This is an example of ________ to limit its risk.

From the perspective of determining profit and loss, the long futures position most closely resembles a levered investment in a ________.

On 25 February 2008 you could have purchased a futures contract from Intrade that would pay you $1 if Barack Obama wins the 2008 Democratic Party nomination. At a price of $0.81, the contract for Obama carried the highest price of any Democratic candidate. This tells you ________.

A hypothetical futures contract on a non-dividend-paying stock with current spot price of $100 has a maturity of four years. If the T-bond rate is 7% what should the futures price be?

Which one of the following is a true statement?

On Monday morning you sell one June T-bond futures contract at 97: 27 or for $97 843.75. The contract's face value is $100 000. The initial margin requirement is $2 700 and the maintenance margin requirement is $2 000 per contract. Use the following price data to answer the question. After Monday's close the balance on your margin account will be ________.

A one-year gold futures contract is selling for $641. Spot gold prices are $600 and the one year risk free rate is 6%. Which of the following set of transactions will yield positive riskless arbitrage profits?