Chapter 22 – Futures Markets
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Chapter 22
Futures Markets
Multiple Choice Questions
1. A futures contract
Difficulty: Easy
2. The terms of futures contracts __________ standardized, and the terms of forward contracts
__________ standardized.
Difficulty: Easy
22-3
6. Investors who take long positions in futures agree to __________ of the commodity on the
delivery date, and those who take the short positions agree to __________ of the commodity.
Difficulty: Moderate
7. The terms of futures contracts such as the quality and quantity of the commodity and the
delivery date are
Difficulty: Moderate
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Difficulty: Moderate
Difficulty: Moderate
13. You hold one long corn futures contract that expires in April. To close your position in
corn futures before the delivery date you must
22-6
Difficulty: Moderate
22-7
16. Financial futures contracts are actively traded on the following indices except
Difficulty: Moderate
17. Financial futures contracts are actively traded on the following indices
Difficulty: Moderate
18. Agricultural futures contracts are actively traded on
Difficulty: Moderate
22-8
19. Agricultural futures contracts are actively traded on
Difficulty: Moderate
20. Agricultural futures contracts are actively traded on
Difficulty: Moderate
21. Agricultural futures contracts are actively traded on
Difficulty: Moderate
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22. Foreign currency futures contracts are actively traded on the
Difficulty: Moderate
23. Foreign currency futures contracts are actively traded on the
Difficulty: Moderate
24. Metals and energy currency futures contracts are actively traded on
Difficulty: Moderate
22–10
25. Metals and energy currency futures contracts are actively traded on
Difficulty: Moderate
26. Interest rate futures contracts are actively traded on the
Difficulty: Moderate
27. To exploit an expected increase in interest rates, an investor would most likely
Difficulty: Difficult
22–11
28. An investor with a long position in Treasury notes futures will profit if
Difficulty: Moderate
29. To hedge a long position in Treasury bonds, an investor most likely would
Difficulty: Difficult
30. An increase in the basis will __________ a long hedger and __________ a short hedger.
Difficulty: Difficult
22–12
Difficulty: Difficult
Difficulty: Difficult
33. If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P
500 Index you could make an arbitrage profit by
Difficulty: Moderate
22–13
34. On January 1, the listed spot and futures prices of a Treasury bond were 93.8 and 93.13.
You purchased $100,000 par value Treasury bonds and sold one Treasury bond futures
contract. One month later, the listed spot price and futures prices were 94 and 94.09,
respectively. If you were to liquidate your position, your profits would be
Difficulty: Difficult
35. You purchased one silver future contract at $3 per ounce. What would be your profit
(loss) at maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract
size is 5,000 ounces and there are no transactions costs.
Difficulty: Moderate
22–14
36. You sold one silver future contract at $3 per ounce. What would be your profit (loss) at
maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size is
5,000 ounces and there are no transactions costs.
Difficulty: Moderate
37. You purchased one corn future contract at $2.29 per bushel. What would be your profit
(loss) at maturity if the corn spot price at that time were $2.10 per bushel? Assume the
contract size is 5,000 ounces and there are no transactions costs.
Difficulty: Moderate
38. You sold one corn future contract at $2.29 per bushel. What would be your profit (loss) at
maturity if the corn spot price at that time were $2.10 per bushel? Assume the contract size is
5,000 ounces and there are no transactions costs.
Difficulty: Moderate
22–15
39. You sold one wheat future contract at $3.04 per bushel. What would be your profit (loss)
at maturity if the wheat spot price at that time were $2.98 per bushel? Assume the contract
size is 5,000 ounces and there are no transactions costs.
Difficulty: Moderate
40. You purchased one wheat future contract at $3.04 per bushel. What would be your profit
(loss) at maturity if the wheat spot price at that time were $2.98 per bushel? Assume the
contract size is 5,000 ounces and there are no transactions costs.
Difficulty: Moderate
41. On January 1, you sold one April S&P 500 index futures contract at a futures price of 420.
If on February 1 the April futures price were 430, what would be your profit (loss) if you
closed your position (without considering transactions costs)?
Difficulty: Difficult
22–16
42. On January 1, you bought one April S&P 500 index futures contract at a futures price of
420. If on February 1 the April futures price were 430, what would be your profit (loss) if you
closed your position (without considering transactions costs)?
Difficulty: Difficult
43. You sold one soybean future contract at $5.13 per bushel. What would be your profit
(loss) at maturity if the wheat spot price at that time were $5.26 per bushel? Assume the
contract size is 5,000 ounces and there are no transactions costs.
Difficulty: Moderate
44. You bought one soybean future contract at $5.13 per bushel. What would be your profit
(loss) at maturity if the wheat spot price at that time were $5.26 per bushel? Assume the
contract size is 5,000 ounces and there are no transactions costs.
Difficulty: Moderate
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48. Normal backwardation
Difficulty: Easy
49. Contango
Difficulty: Easy
50. Delivery of stock index futures
Difficulty: Moderate
22–19
51. The establishment of a futures market in a commodity should not have a major impact on
spot prices because
Difficulty: Moderate
52. The most recently established category of futures contracts is
Difficulty: Moderate
53. If a trader holding a long position in corn futures fails to meet the obligations of a futures
contract, the party that is hurt by the failure is
Difficulty: Moderate