Chapter 13: Financial Futures Markets
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1. A(n) ____ is a standardized agreement to deliver or receive a specified amount of a specified financial instrument at a
specified price and date.
a.
option contract
b.
brokerage contract
c.
financial futures contract
d.
margin call
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
2. Interest rate futures are not available on
a.
b.
c.
d.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
3. ____ take positions in futures to reduce their exposure to future movements in interest rates or stock prices.
a.
Hedgers
b.
Day traders
c.
Position traders
d.
None of the above
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
4. The initial margin of a futures contract is typically between ____ percent of a futures contract’s full value.
a.
0 and 2
b.
5 and 18
c.
25 and 40
d.
45 and 60
ANSWER:
b
DIFFICULTY:
Moderate
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c.
are commonly traded
d.
A and B
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
9. Assume that speculators purchased a futures contract at the beginning of the year. If the price of a security represented
by the futures contract ____ over the year, then these speculators would likely have purchased the futures contract for
____ than they can sell it for.
a.
increased; more
b.
decreased; less
c.
remains the same; more
d.
increased; less
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
10. Assume that a futures contract on Treasury bonds with a face value of $100,000 is purchased at 93-00. If the same
contract is later sold at 94-18, what is the gain, ignoring transaction costs?
a.
$1,180,000
b.
$118
c.
$11,800
d.
$15,625
e.
$1,562.50
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
11. The use of financial leverage
a.
magnifies the positive returns of futures contracts.
b.
magnifies losses of futures contracts.
c.
both A and B
d.
none of the above
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
Chapter 13: Financial Futures Markets
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Page 5
hedge its position, it could ____ futures contracts.
a.
adversely; purchase
b.
favorably; sell
c.
favorably; purchase
d.
adversely; sell
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
16. According to the text, using a futures contract on one financial instrument to hedge a position in a different financial
instrument is known as
a.
cross-hedging.
b.
ratio hedging.
c.
basis hedging.
d.
liquid hedging.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
17. The effectiveness of a cross-hedge depends on the degree of correlation between the market values of the two financial
instruments.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
18. In cross-hedging, if the value of the futures contract is more volatile than the portfolio’s value, the amount of principal
represented by the futures contracts will be ____ the market value of the portfolio to be hedged.
a.
smaller than
b.
greater than
c.
equal to
d.
B and C are both possible
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
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b.
the date at which the futures price reaches its maximum.
c.
the date at which the futures price reaches its minimum.
d.
the date three months beyond the date when the initial position was taken.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
23. The value of an S&P 500 futures contract is $500 times the index. Assume the futures price on the S&P 500 index is
1612 at the time of purchase. If the index price is 1619 when the position is closed out, the gain is
a.
$700.
b.
$7,000.
c.
$3,190.
d.
$3,120.
e.
$3,500.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
24. Assume that a stock mutual fund uses stock index futures as it conducts dynamic asset allocation. This means that the
mutual fund
a.
liquidates its stocks whenever it expects a market downturn.
b.
maintains a constant buy position in stock index futures.
c.
maintains a constant sell position in stock index futures.
d.
none of the above
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
25. Companies with international trade can hedge ____ by ____ currency futures.
a.
payables; selling
b.
receivables; buying
c.
payables; buying
d.
A and B
e.
B and C
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 8
26. Assume that corporate bond portfolio managers are concerned about the possibility of many bond defaults resulting
from a future recession. A short position in Treasury bond futures ____ an effective hedge against the credit (default) risk.
A short position in Treasury bill futures ____ an effective hedge against the credit (default) risk.
a.
would be; would be
b.
would be; would not be
c.
would not be; would not be
d.
would not be; would be
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
27. Which of the following statements is incorrect with respect to cross-hedging?
a.
Even when the futures contract is highly correlated with the portfolio being hedged, the value of the futures
contract may change by a higher or lower percentage than the portfolio’s market value.
b.
If the futures contract value is more volatile than the portfolio value, hedging will require a greater amount of
principal represented by the futures contracts.
c.
The effectiveness of a cross-hedge depends on the degree of correlation between the market values of the two
financial instruments.
d.
If the price of the underlying security of the futures contract moves closely in tandem with the security being
hedged, the futures contract can provide an effective hedge.
e.
All of the above are correct with respect to cross-hedging.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
28. ____ risk is the risk that the position being hedged by a futures contract is not affected in the same manner as the
instrument underlying the futures contract.
a.
Market
b.
Liquidity
c.
Credit
d.
Basis
e.
None of the above
ANSWER:
d
Chapter 13: Financial Futures Markets
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ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
33. The prices of stock index futures
a.
are always the same as the prices of the stocks representing the index.
b.
are always a little above the prices of the stocks representing the index.
c.
are always a little below the prices of the stocks representing the index.
d.
none of the above
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
34. The actions of numerous institutional investors to sell stock index futures instead of selling stocks to prepare for a
market decline would likely cause the index futures price to be
a.
equal to the prevailing stock prices.
b.
below the prevailing stock prices.
c.
above the prevailing stock prices.
d.
negative.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
35. Speculators who normally close out their futures positions on the same day that the positions were initiated are
referred to as
a.
day traders.
b.
hedgers.
c.
closed-end traders.
d.
position traders.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Chapter 13: Financial Futures Markets
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Page 11
36. Speculators in futures contracts that normally maintain their futures positions for extended periods of time (such as
weeks or months) are referred to as
a.
day traders.
b.
hedgers.
c.
closed-end traders.
d.
position traders.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
37. Which of the following is incorrect regarding organized exchanges trading financial futures contracts?
a.
Organized exchanges establish and enforce rules for the trading of financial futures contracts.
b.
Organized exchanges ensure that the seller of the futures contract always delivers the securities covered by the
contract, whether the contract was settled prior to the settlement date or not.
c.
Organized exchanges clear, settle, and guarantee all transactions that occur on their exchanges.
d.
The operations of financial futures exchanges are regulated by the Commodity Futures Trading Commission
(CFTC).
e.
All of the above are correct.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
38. Laura sells an S&P 500 futures contract with a September settlement date when the index is 1750. By the settlement
date, the S&P 500 index falls to 1400. The return on Laura’s position in the S&P 500 futures contract is ____ percent.
a.
−20
b.
−10
c.
25
d.
20
e.
0
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
39. Assume a corporation is receiving a large amount of funds in the near future. The company plans to use the funds to
purchase municipal bonds. Also assume that the company is concerned that interest rates will decrease before the
purchase date, which would make the municipal bonds more expensive. In order to hedge against this possibility, the
Chapter 13: Financial Futures Markets
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Page 12
company should ____ MBI futures contracts. If interest rates decrease, the futures contract will generate a ____.
a.
sell; loss
b.
purchase; gain
c.
purchase; loss
d.
sell; gain
e.
none of the above
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Analysis
40. If there are ____ traders with buy offers than sell offers for a particular contract, the futures price will ____ until this
imbalance is removed.
a.
more; decrease
b.
more; rise
c.
fewer; rise
d.
none of the above
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
41. Which of the following statements is incorrect?
a.
Circuit breakers are trading restrictions imposed on specific stocks or stock indexes.
b.
Circuit breakers guarantee that prices will turn upward.
c.
Circuit breakers may be able to prevent large declines in prices that would be attributed to panic selling rather
than to fundamental forces.
d.
Circuit breakers may allow investors to determine whether circulating rumors are true.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
42. Financial futures contracts on stock indexes are referred to as interest rate futures.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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43. Financial futures contracts are rarely sold over the counter.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
44. Brokers commonly require margin deposits from their customers above those required by the exchanges.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
45. Purchasers of financial futures contracts usually know who the sellers are, and vice versa.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
46. The futures price is mainly a function of the prevailing price of the underlying security plus an expected adjustment in
that price by the settlement date.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
Chapter 13: Financial Futures Markets
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b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
52. Since stock index futures prices are primarily driven by movements in the corresponding stock indexes, participants in
stock index futures monitor indicators that may signal changes in the stock indexes.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
53. The price of stock index futures may reflect investor expectations about the market more rapidly than stock prices.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
54. Financial futures contracts on U.S. securities are commonly traded by non-U.S. financial institutions that maintain
holdings of U.S. securities.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
55. Purchasers of currency futures contracts are required to hold the contract until the settlement date and accept delivery
of the foreign currency at that time.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
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56. Which of the following statements is incorrect regarding single stock futures?
a.
Investors who expect a particular stock’s price to decline over time can sell futures contracts on that stock, or
they can sell the stock short.
b.
Single stock futures are available only on stocks of companies that are in the S&P 500 index.
c.
Single stock futures are traded in the United States at OneChicago.
d.
Single stock futures are regulated by the Commodity Futures Trading Commission (CFTC) and the Securities
and Exchange Commission.
e.
All of the above are correct
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
57. Stock index futures are priced ____ than the stock index itself.
a.
higher
b.
lower
c.
either higher or lower
d.
none of the above
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
58. An unexpected ____ in the consumer price index tends to create expectations of ____ interest rates and places ____
pressure on Treasury bond futures prices.
a.
increase; higher; downward
b.
increase; lower; downward
c.
increase; higher; upward
d.
decrease; higher; downward
e.
none of the above
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
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59. Bill Baher, a private investor, purchased a futures contract on Treasury bonds at a price of 102-12. Two months later,
Baher sells the same futures contract in order to close out the position. At that time, the futures contract specifies 103-15.
What is Baher’s nominal profit? The par value of the futures contract is $100,000.
a.
$1,030.00; profit
b.
$1,030.00; loss
c.
$1,093.75; profit
d.
$1,093.75; loss
e.
none of the above
ANSWER:
c
DIFFICULTY:
Challenging
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
60. Clarke Company plans to satisfy cash needs in nine months by selling its Treasury bond holdings for $4 million.
However, Clarke is concerned that interest rates might increase over the next three months. To hedge against this
possibility, Clarke plans to sell Treasury bond futures. Thus, Clarke sells ____ futures contract for a price of 99-12.
Assuming that the actual price of the futures contract declines to 97-20, Clarke would make a ____ of $____ from closing
out the futures position.
a.
40; profit; $76,800
b.
40; loss; $76,800
c.
50; profit; $70,000
d.
40; profit; $70,000
e.
none of the above
ANSWER:
d
DIFFICULTY:
Challenging
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
61. _________ take positions in financial futures to reduce their exposure to future movements in interest rates or stock
prices; ________ commonly take the opposite position and thus serve as counterparties on many transactions.
a.
Speculators; hedgers
b.
Hedgers; speculators
c.
Arbitrageurs; speculators
d.
Hedgers; arbitrageurs
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
Copyright Cengage Learning. Powered by Cognero.
Page 18
62. Some specialized futures contracts are sold over the counter, whereas standardized financial futures contracts are
traded on exchanges.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
63. A financial institution that wishes to reduce its exposure to the possibility of declining interest rates might use:
a.
a long hedge.
b.
a short hedge.
c.
a day hedge.
d.
index arbitrage.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
64. Settlement of stock index futures contracts occurs through delivery of the underlying securities.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
65. ___________ involves the buying or selling of stock index futures with a simultaneous opposite position in the stocks
that the index comprises.
a.
Dynamic asset allocation
b.
Cross-hedging
c.
Index arbitrage
d.
Net hedging
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Copyright Cengage Learning. Powered by Cognero.
Page 19
66. Which of the following is not a type of risk associated with futures contracts?
a.
basis risk
b.
liquidity risk
c.
market risk
d.
postpayment risk
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.13.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
67. Credit risk exists for futures contracts traded on exchanges, but it is normally not a concern for over-the-counter
futures transactions.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.13.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension