Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Hull: Fundamentals of Futures and Options Markets, Ninth Edition
Chapter 3: Hedging Strategies Using Futures
Multiple Choice Test Bank
1. The basis is defined as spot minus futures. A trader is hedging the sale of an asset with a short
futures position. The basis increases unexpectedly. Which of the following is true?
A. The hedger’s position improves.
B. The hedger’s position worsens.
C. The hedger’s position sometimes worsens and sometimes improves.
D. The hedger’s position stays the same.
2. Futures contracts trade with every month as a delivery month. A company is hedging the
purchase of the underlying asset on June 15. Which futures contract should it use?
A. The June contract
B. The July contract
C. The May contract
D. The August contract
3. On March 1 a commodity’s spot price is $60 and its August futures price is $59. On July 1 the
spot price is $64 and the August futures price is $63.50. A company entered into futures
contracts on March 1 to hedge its purchase of the commodity on July 1. It closed out its position
on July 1. What is the effective price (after taking account of hedging) paid by the company?
A. $59.50
B. $60.50
C. $61.50
D. $63.50
4. On March 1 the price of a commodity is $1,000 and the December futures price is $1,015. On
November 1 the price is $980 and the December futures price is $981. A producer of the
commodity entered into a December futures contracts on March 1 to hedge the sale of the
commodity on November 1. It closed out its position on November 1. What is the effective price
(after taking account of hedging) received by the company for the commodity?
A. $1,016
B. $1,001
C. $981
D. $1,014
