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Exam 17: Futures Markets and Risk Management

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Question 21

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________ 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

E) B) and D)
F) A) and B)

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Question 22

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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

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

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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 its interest rate risk, the bank could ________.

The current level of the S&P 500 is 1,250. 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 ________.

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

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

A hypothetical futures contract on a nondividend-paying stock with a current spot price of $100 has a maturity of 4 years. If the T-bill rate is 7%, what should the futures price be?

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 ________.

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

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

A speculator will often prefer to buy a futures contract rather than the underlying asset because: I. Gains in futures contracts can be larger due to leverage. II. Transaction costs in futures are typically lower than those in spot markets. III. Futures markets are often more liquid than the markets of the underlying commodities.

Margin must be posted by ________.

On Monday morning you sell one June T-bond futures contract at $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 following questions. The cumulative rate of return on your investment after Wednesday is a ________.

The only money exchanged by both the long and short at the creation of a futures contract is called the ________.

On Monday morning you sell one June T-bond futures contract at $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 following questions. At the close of day on Tuesday your cumulative rate of return on your investment is ________.

In the futures market the short position's loss is ________ the long position's gain.

The CME weather futures contract is an example of ________.

Approximately ________ of futures contracts result in actual delivery.

Today's futures markets are dominated by trading in ________ contracts.

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.