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Exam 17: Futures Markets and Risk Management

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Question 21

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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

E) A) and B)
F) All of the above

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Question 22

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A long hedger will __________ from an increase in the basis a short hedger will __________.

A) be hurt; be hurt
B) be hurt; profit
C) profit; be hurt
D) profit; profit

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

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Question 23

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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.

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 __________.

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

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

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 questions 67 through 70. -After Monday's close the balance on your margin account will be ________.

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.

Margin must be posted by ________.

The S&P500 index futures contract is an example of a(n) ______ delivery contract.The pork bellies contract is an example of a(n) ______ delivery contract.

A company which mines bauxite decides to short aluminum futures.This is an example of __________ to limit its risk.

On February 25,2008 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 person with a long position in a commodity futures contract wants the price of the commodity to ______.

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

At year end,taxes on a futures position _______________.

An investor would want to __________ to exploit an expected fall in interest rates.

Sahali Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 9%.Sahali Trading Company then enters into an interest rate swap where they will pay LIBOR and receive a fixed 8.00% on a notional principal of $100 million.After all these transactions are considered,Sahali's cost of funds is __________.

A futures contract __________.

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 questions 67 through 70. -The volume of interest rate swaps increased from almost zero in 1980 to over __________ today.