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Essentials of Investments, 11e (Bodie)
1) Today's futures markets are dominated by trading in ________ contracts.
A) metals
B) agriculture
C) financial
D) commodity
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
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
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
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
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
7) Synthetic stock positions are commonly used by ________ because of their ________.
A) market timers; lower transaction cost
B) banks; lower risk
C) wealthy investors; tax treatment
D) money market funds; limited exposure
8) ________ 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
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
10) An investor who is hedging a corporate bond portfolio using a T-bond futures contract is said
to have ________.
A) an arbitrage
B) a cross-hedge
C) an over hedge
D) a spread hedge
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
12) 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.
A) pay; pay
B) pay; receive
C) receive; pay
D) receive; receive
13) An investor who goes long in a futures contract will ________ any increase in value of the
underlying asset and will ________ any decrease in value in the underlying asset.
A) pay; pay
B) pay; receive
C) receive; pay
D) receive; receive
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
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
16) In the futures market the short position's loss is ________ the long position's gain.
A) greater than
B) less than
C) equal to
D) sometimes less than and sometimes greater than
17) A wheat farmer should ________ in order to reduce his exposure to risk associated with
fluctuations in wheat prices.
A) sell wheat futures
B) buy wheat futures
C) buy a contract for delivery of wheat now and sell a contract for delivery of wheat at harvest
time
D) sell wheat futures if the basis is currently positive and buy wheat futures if the basis is
currently negative
18) Which of the following provides the profit to a long position at contract maturity?
A) original futures price − Spot price at maturity
B) spot price at maturity − Original futures price
C) zero
D) basis
19) You take a long position in a futures contract of one maturity and a short position in a
contract of a different maturity, both on the same commodity. This is called a ________.
A) cross-hedge
B) reversing trade
C) spread position
D) straddle
20) Interest rate futures contracts exist for all of the following except ________.
A) federal funds
B) Eurodollars
C) banker's acceptances
D) repurchase agreements
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%
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
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
24) 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
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
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
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.
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
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
30) Which one of the following exploits differences between actual future prices and their
theoretically correct parity values?
A) index arbitrage
B) marking to market
C) reversing trades
D) settlement transactions
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
32) The most actively traded interest rate futures contract is for ________.
A) LIBOR
B) Treasury bills
C) Eurodollars
D) Treasury bonds
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
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 OneChicago, a joint venture of several exchanges
D) scheduled to begin trading in 2015 on several exchanges
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
36) 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
37) Futures markets are regulated by the ________.
A) CFA Institute
B) CFTC
C) CIA
D) SEC
38) A hog farmer decides to sell hog futures. This is an example of ________ to limit risk.
A) cross-hedging
B) short hedging
C) spreading
D) speculating
39) On May 21, 2012, you could have purchased a futures contract from Intrade for a price of
$5.70 that would pay you $10 if Barack Obama won the 2012 presidential election. This tells you
________.
A) that the market believed that Obama had a 57% chance of winning
B) that the market believed that Obama would not win the election
C) nothing about the market's belief concerning the odds of Obama winning
D) that the market believed Obama's chances of winning were about 43%
40) An investor would want to ________ to exploit an expected fall in interest rates.
A) sell S&P 500 Index futures
B) sell Treasury-bond futures
C) buy Treasury-bond futures
D) buy wheat futures
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
42) If the S&P 500 Index futures contract is overpriced relative to the spot S&P 500 Index, you
should ________.
A) buy all the stocks in the S&P 500 and write put options on the S&P 500 Index
B) sell all the stocks in the S&P 500 and buy call options on S&P 500 Index
C) sell S&P 500 Index futures and buy all the stocks in the S&P 500
D) sell short all the stocks in the S&P 500 and buy S&P 500 Index futures
43) A long hedge is a simultaneous ________ position in the spot market and a ________
position in the futures market.
A) long; long
B) long; short
C) short; long
D) short; short
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
45) An investor would want to ________ to hedge a long position in Treasury bonds.
A) buy interest rate futures
B) buy Treasury bonds in the spot market
C) sell interest rate futures
D) sell S&P 500 futures
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
47) In the context of a futures contract, the basis is defined as ________.
A) the futures price minus the spot price
B) the spot price minus the futures price
C) the futures price minus the initial margin
D) the profit on the futures contract
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
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
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
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
52) A short hedge is a simultaneous ________ position in the spot market and a ________
position in the futures market.
A) long; long
B) long; short
C) short; long
D) short; short
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%
