41) Sugar is currently selling for $0.201 a pound while the 6-month futures price is $0.208. You
take a long position in the 6-month sugar futures. Which one of the following prices would cause
you the greatest loss if that price turns out to be the actual price of sugar per pound 6 months
from now?
A) $0.198
B) $0.201
C) $0.205
D) $0.208
E) $0.211
42) Luke owns a large farming operation which encompasses over 5,000 acres of corn. The crop
this year is abundant and will be ready for harvesting next month. Luke likes the market prices
today but expects the prices to decline over the next month as the supply of corn increases.
Which one of the following positions should Luke take to hedge his corn crop?
A) sell in the spot market today
B) buy in the spot market today
C) take a long futures position
D) take a short futures position
E) sell in the spot today and take a long position in the futures market
43) You have 50,000 pounds of cotton in storage. You don’t want to sell the cotton today as you
believe the price of cotton will be higher six months from now than what the markets currently
predict. However, you also realize that the price could decline. Which one of the following
would hedge your risk of owning the cotton for the next few months?
A) short futures position
B) long futures position
C) short spot position
D) long spot position
E) long futures position combined with a short spot position
44) You are a baker and need to purchase a substantial amount of wheat flour three months from
now in preparation for your busy season. Your concern is that the price of wheat will increase
substantially before you make your purchase. Which one of the following positions in wheat
would be an effective hedge for you?
A) long position in spot market
B) short position in spot market
C) long position in futures market
D) short position in futures market
E) none of these
45) Which one of the following describes the typical initial margin requirements for a futures
contract?
A) 2 to 5 percent of contract value on short positions only
B) 2 to 5 percent of contract value on both long and short positions
C) 4 to 8 percent of contract value on long positions only
D) 4 to 8 percent of contract value on short positions only
E) 5 to 15 percent of contract value on both long and short positions
46) You can withdraw funds from your margin account without closing your futures contract
given which two of the following?
I. marking-to-market deducts funds from your margin account
II. marking-to-market adds funds to your margin account
III. margin balance after the withdrawal will exceed the maintenance margin requirement
IV. margin balance after the withdrawal will exceed the initial margin requirement
A) I and III only
B) I and IV only
C) II and III only
D) II and IV only
E) Funds cannot be withdrawn as long as the futures contract is outstanding.
47) You currently have a long position in the 3-month futures market. Which one of the
following would be a reverse trade to this position?
A) short spot
B) long spot
C) short 3-month futures
D) long 3-month futures
E) short 6-month futures
48) Which one of the following statements is correct?
A) Futures contracts must be held to maturity.
B) Futures contracts can be closed out only by contract buyers.
C) Futures contracts can be closed out, but only during the week prior to maturity.
D) You cannot avoid accepting delivery once you purchase a futures contract.
E) Futures contracts can be closed out by entering a reverse trade.
49) Which of the following are reasons why commodities may have a negative basis?
I. storage costs
II. seasonal price fluctuations
III. transportation costs
IV. interest costs
A) I only
B) IV only
C) I and III only
D) I, II, and III only
E) I, II, III, and IV
50) Which one of the following statements is correct concerning an inverted futures market?
A) The basis will be negative.
B) The basis will equal zero.
C) The cash price will equal the futures price.
D) The cash price will exceed the futures price.
E) Arbitrage opportunities must exist.
51) If spot-futures parity exists for an index future then the future price must equal the:
A) spot price.
B) present value of the spot price at the risk-free rate.
C) present value of the spot price at the market rate.
D) future value of the spot price at the risk-free rate.
E) future value of the spot price at the market rate.
52) You are trying to value a 3-month futures contract on a stock. The market rate of return is
11.2 percent, the risk-free rate is 3.8 percent, and the dividend yield on the stock is 2.6 percent.
The stock is currently selling for $33 a share. What is the value of “T” as used in the formula for
computing the future stock price (FT = S(1 – r)^T)?
A) 0.112
B) 0.250
C) 0.026
D) 0.038
E) 0.064
53) How is a futures contract on the S&P 500 settled?
A) cash
B) shares of stock selected by the contract buyer
C) shares of stock selected by the contract seller
D) shares of stock equivalent to those in the index
E) delivery of a Treasury bill equal in value to the settlement amount
54) You own a diversified investment portfolio and wish to hedge it against market declines.
Which one of the following would be best suited as a cross-hedge for this purpose?
A) going long on Treasury bonds in the spot market
B) going long on DJIA futures
C) going short on S&P 500 index futures
D) going long on an index fund
E) going short on Eurodollar futures
55) Which of the following are needed to determine the number of stock index futures required
to cross-hedge a stock portfolio?
I. standard deviation of the stock portfolio
II. beta of the stock portfolio
III. value of the index futures contract
IV. value of the stock portfolio
A) I and III only
B) II and IV only
C) I, II, and III only
D) II, III, and IV only
E) I, III, and IV only
56) You currently own a stock portfolio that has a beta of 1.2. If you fully hedge your stock
portfolio you will effectively change the portfolio’s beta to which one of the following?
A) 0
B) 1
C) 1 / 1.2
D) 1.2
E) 1.22
57) A fully-hedged stock portfolio will have a beta equal to which one of the following?
A) an average asset
B) U.S. Treasury bill
C) S&P 500
D) the beta of the stock portfolio exclusive of the hedge
E) one-half of the beta of the stock portfolio exclusive of the hedge
58) Which one of the following futures contracts is generally used to hedge a bond portfolio?
A) S&P 500 index
B) Eurodollar
C) U.S. Treasury notes
D) gold
E) LIBOR rates
59) The duration of an interest rate futures contract is equal to the summation of which of the
following?
I. duration of the instrument most likely to be used as a cross-hedge
II. duration of the underlying instrument
III. initial length of time of the futures contract
IV. time remaining on the futures contract
A) II only
B) I and II only
C) I and III only
D) II and III only
E) II and IV only
60) What is the closing value of one December futures contract on corn?
Contract
Open
High
Low
Close
Dec. Corn. 5,000 bu, cents/bu
620.50
623.50
617.00
Dec. Wheat. 5,000 bu, cents/bu
804.00
810.00
801.00
A) $6.17
B) $617.00
C) $30,850
D) $308,500
E) $3,085,000
61) You purchased five September wheat futures contracts at the open today and sold those
contracts at the close. What is your total profit or loss on these contracts?
Contract
Open
High
Low
Close
Sep, Corn, 5,000 bu, cents/bu
615.50
618.25
612.50
Sep, Wheat, 5,000 bu, cents/bu
814.00
820.00
811.00
A) -$750,000
B) -$75,000
C) -$7,500
D) -$750
E) -$75
62) You purchased four September corn futures contracts at what turned out to be the lowest
price of the day and sold those contracts at today’s close. What is your total profit or loss on this
investment?
Contract
Open
High
Low
Close
Sep, Corn, 5,000 bu, cents/bu
615.50
618.25
612.50
Sep, Wheat, 5,000 bu, cents/bu
814.00
820.00
811.00
A) -$287.50
B) -$1,100
C) -$2,875
D) $1,100
E) $14,250
63) By how much did one September futures contract on wheat vary during today’s trading?
Contract
Open
High
Low
Close
Dec, Corn, 5,000 bu, cents/bu
620.50
623.50
617.00
Dec, Wheat, 5,000 bu, cents/bu
804.00
810.00
801.00
A) $0.115
B) $1.15
C) $11.50
D) $115.00
E) $575.00
64) What is the absolute price difference on a $100,000, 5-year Treasury note futures contract
between the high and low prices? Treasury note, $100,000, pts and one-quarter of 1/32 of a point
Contract
Open
High
Low
Close
Jun, 5 Yr. Treasury note
112’067
112’117
111’185
111’250
A) $428.13
B) $512.08
C) $625.33
D) $787.50
E) $811.33
65) What is the price difference on a $100,000, 10-year Treasury note futures contract between
the highest and lowest prices at which the bond traded on this day? Treasury note, $100,000, pts
and one-half of 1/32 of a point
Contract
Open
High
Low
Close
Jun, 10 Yr. Treasury note
115’270
116’065
115’000
115’035
A) $106.50
B) $1,065.00
C) $1,203.13
D) $10,650.00
E) $12,031.30
66) What is the difference between this day’s high and closing prices for one 10-year Treasury
note futures contract? Treasury note, $100,000, pts and one-half of 1/32 of a point
Contract
Open
High
Low
Close
Jun, 10 Yr. Treasury note
110’25
112’05
109’8
110’30
A) $835.00
B) $950.00
C) $1,000.00
D) $1,171.88
E) $1,218.75
67) What is the difference in the value of one November heating oil contract between this day’s
opening and closing prices?
Contract
Open
High
Low
Close
Nov, Heating oil, 42,000 gal, $
and cents/gal
3.6730
3.7489
3.7324
Nov, Crude oil, 1,000 bbls, $ and
cents/bbl
122.71
124.50
124.40
A) $59.40
B) $249.48
C) $2,494.80
D) $2,970.00
E) $5,940.00
68) What is the amount of the difference between the highest and the lowest value of a
November heating oil contract on this day?
Contract
Open
High
Low
Close
Nov, Heating oil, 42,000 gal, $ and
cents/gal
3.6730
3.7489
3.6652
3.7324
Nov, Crude oil, 1,000 bbls, $ and
cents/bbl
122.71
124.50
122.70
124.40
A) $3,525.00
B) $3,515.40
C) $3,517.72
D) $3,549.70
E) $3,554.10
69) You own three November crude oil futures contracts. What is the settlement value of those
contracts at the end day?
Contract
Open
High
Low
Close
Nov, Crude oil, 1,000 bbls. $ and cents/bbl
120.7
122.1
119.8
121.20
A) $356,200
B) $363,600
C) $376,400
D) $416,500
E) $447,000
70) Southern Fuel has an inventory of 756,000 gallons of heating oil. The futures contracts on
heating oil are based on 42,000 gallons. If the firm wishes to fully hedge its inventory, it should
take which one of the following positions in heating oil futures contracts?
A) long on 16
B) long on 17
C) short on 18
D) short on 19
E) short on 20