Question 1

On January 1,you sold one April S&P/TSX 60 index futures contract at a futures price of 840.If on February 1 the April futures price is 850,what would be your profit (loss)if you closed your position (without considering transactions costs)?

Accepted Answer

The profit or loss on a futures contract is calculated by the difference in the futures price multiplied by the contract size. Here, the price increased from 840 to 850, resulting in a loss. The contract size for S&P/TSX 60 is typically $200 per point, so the loss is (850 - 840) * $200 = $2,000.

Question 2

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.

Accepted Answer

The profit or loss in a futures contract is calculated as the difference between the spot price at maturity and the contract price at which the contract was purchased, multiplied by the contract size. 
Profit/Loss = (Spot price at maturity - Contract price)* Contract size 
Here, the contract price is $3 per ounce, the spot price at maturity is $4.10 per ounce, and the contract size is 5,000 ounces. 
Profit/Loss = ($4.10 - $3) * 5,000 = $5,500 profit. 
Therefore, the correct answer is (B).

Question 3

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

Accepted Answer

If the futures are overpriced, you can sell the futures and buy the underlying stocks to profit from the price discrepancy when they converge.

Question 4

You purchased a Treasury bond futures contract on the Chicago Board of Trade (CBOT)at a futures price of 96.3125.What would your profit (loss)be at maturity if the futures price increased by 2 points?

Accepted Answer

One point in futures contract for Treasury bond is equal to $1000. A 2 point increase in the price will be $1000 x 2 = $2000. Since the bond future was bought, an increase in price results in profit. Therefore, the profit will be $2000.

Question 5

The establishment of a futures market in a commodity should not have a major impact on spot prices because

Accepted Answer

Futures trading is a zero-sum game, meaning that for every winner, there is a corresponding loser. This means that the establishment of a futures market in a commodity should not have a major impact on spot prices. Furthermore, the size of the futures market relative to the spot market is not necessarily a determining factor in whether or not spot prices will be affected.

Question 6

An increase in the basis will __________ a long hedger and __________ a short hedger.

Accepted Answer

An increase in the basis means that the difference between the cash price and the futures price has decreased. This is beneficial for a long hedger who is buying the underlying asset because they can now purchase the asset at a lower price. However, this would hurt a short hedger who is selling the underlying asset because they will receive a lower price for the asset.

Question 7

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

Accepted Answer

The clearinghouse is responsible for ensuring that all parties fulfill their obligations in a futures contract. If a long trader fails to meet their obligations, it could harm the clearinghouse and ultimately the stability of the entire futures market. The offsetting short trader, corn farmer, broker, and commodities dealer may be impacted by the failure, but the clearinghouse is ultimately responsible for ensuring the integrity of the market.

Question 8

Given a stock index with a value of $1,500,an anticipated dividend of $62 and a risk-free rate of 5.75%,what should be the value of one futures contract on the index?

Accepted Answer

The futures price can be calculated using the formula: Futures Price = Spot Price * (1 + Risk-Free Rate) - Dividend. Plugging in the values: $1,500 * (1 + 0.0575) - $62 = $1524.25.

Question 9

Which one of the following statements regarding "basis" is not true?

Accepted Answer

A short hedger hedges against a decrease in the spot price, so they would benefit from a decrease in the basis, not suffer losses. Therefore, statement C is not true.

Question 10

The expectations hypothesis of futures pricing

Accepted Answer

The expectations hypothesis of futures pricing is a theory that states the futures price of an asset is equal to the expected value of the future spot price of the same asset. This theory is widely used by market participants to make informed decisions about the future value of an asset. It is considered one of the simplest theories of futures pricing. Additionally, futures trading is a zero-sum game where one party's gain is equal to the other party's loss. Therefore, option E is incorrect.

Question 11

On April 1,you bought one S&P 500 index futures contract at a futures price of 950.If on June 15^th the futures price were 1012,what would be your profit (loss)if you closed your position (without considering transactions costs)?

Accepted Answer

To calculate the profit or loss, we use the formula:
Profit/Loss = (Futures Price at Closing - Futures Price at Opening) x (value of one index point) x (number of contracts)

Value of one index point = $250 (as each index point represents $250)
Number of contracts = 1

Profit/Loss = (1012 - 950) x $250 x 1
Profit/Loss = $62 x $250 x 1
Profit/Loss = $15,500

Since the futures price went up, we have a profit of $15,500. However, we need to take into account the initial margin requirement that was set by the broker. Assuming it was 10% (a common requirement), we would have had to deposit $4,750 initially. So, we subtract that amount from our profit:

Profit/Loss = $15,500 - $4,750
Profit/Loss = $10,750

Therefore, the answer is C) $15,550 profit.

Question 12

The most recently established category of futures contracts is

Accepted Answer

Financial futures are the most recently established category of futures contracts. They include futures contracts on stock indices, interest rates, and currencies. Agricultural commodities, metals and minerals, and foreign currencies have been traded as futures contracts for much longer periods.

Question 13

Open interest includes

Accepted Answer

The answer of Open interest includes
...

Question 14

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.

Accepted Answer

The formula to calculate profit or loss for a futures contract is: 
Profit/Loss = (Futures price at maturity - Futures price at purchase) x Contract size 
Using this formula, we can calculate the profit/loss as: 
Profit/Loss = ($2.10 - $2.29) x 5000 
Profit/Loss = (-0.19) x 5000 
Profit/Loss = -$950 
Since the spot price is lower than the purchase price, the investor would face a loss of $950 at maturity. Therefore, the correct answer is C, $950 loss.

Question 15

The process of marking-to-market

Accepted Answer

The process of marking-to-market posts gains or losses to each account daily, and it may result in margin calls. It impacts both long and short positions. Therefore, only option E is the correct answer.

Question 16

Normal backwardation

Accepted Answer

Normal backwardation suggests that natural hedgers want to offload risk, and speculators will take the long position if futures prices are below expected spot prices, aligning with both A and B.

Question 17

On January 1,the listed spot and futures prices of a Treasury bond were 93 8/32 and 93 13/32.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

Accepted Answer

The answer of On January 1,the listed spot and futures...

Question 18

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.

Accepted Answer

The profit (loss) at maturity is calculated by subtracting the initial price from the spot price and multiplying it by the contract size (in bushels):
Profit (loss) = (Spot price - Initial price) x Contract size
Profit (loss) = ($5.26 - $5.13) x 5,000 = $650 loss

Question 19

Delivery of stock index futures

Accepted Answer

Delivery of stock index futures is typically made by a cash settlement based on the index value, rather than physical delivery of the underlying stocks. This is because it would be impractical to physically deliver every stock in the index.

Question 20

Contango

Accepted Answer

Contango is a hypothesis that is opposite to backwardation, as mentioned in option B. It also holds that the buyers of a commodity are the natural hedgers, not the suppliers, as stated in option A. Therefore, the correct answer is E, which includes options A and B. Option C is incorrect because it is not related to Contango.

Quiz 19: Globalization and International Investing

On January 1,you sold one April S&P/TSX 60 index futures contract at a futures price of 840.If on February 1 the April futures price is 850,what would be your profit (loss) if you closed your position (without considering transactions costs) ?

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.

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

You purchased a Treasury bond futures contract on the Chicago Board of Trade (CBOT) at a futures price of 96.3125.What would your profit (loss) be at maturity if the futures price increased by 2 points?

The establishment of a futures market in a commodity should not have a major impact on spot prices because

An increase in the basis will a long hedger and a short hedger.

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

Given a stock index with a value of $1,500,an anticipated dividend of $62 and a risk-free rate of 5.75%,what should be the value of one futures contract on the index?

Which one of the following statements regarding "basis" is not true?

The expectations hypothesis of futures pricing

On April 1,you bought one S&P 500 index futures contract at a futures price of 950.If on June 15^th the futures price were 1012,what would be your profit (loss) if you closed your position (without considering transactions costs) ?

The most recently established category of futures contracts is

Open interest includes

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.

The process of marking-to-market

Normal backwardation

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.

Delivery of stock index futures

Contango

Quiz 19: Globalization and International Investing

On January 1,you sold one April S&P/TSX 60 index futures contract at a futures price of 840.If on February 1 the April futures price is 850,what would be your profit (loss) if you closed your position (without considering transactions costs) ?

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.

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

You purchased a Treasury bond futures contract on the Chicago Board of Trade (CBOT) at a futures price of 96.3125.What would your profit (loss) be at maturity if the futures price increased by 2 points?

The establishment of a futures market in a commodity should not have a major impact on spot prices because

An increase in the basis will __________ a long hedger and __________ a short hedger.

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

Given a stock index with a value of $1,500,an anticipated dividend of $62 and a risk-free rate of 5.75%,what should be the value of one futures contract on the index?

Which one of the following statements regarding "basis" is not true?

The expectations hypothesis of futures pricing

On April 1,you bought one S&P 500 index futures contract at a futures price of 950.If on June 15th the futures price were 1012,what would be your profit (loss) if you closed your position (without considering transactions costs) ?

The most recently established category of futures contracts is

Open interest includes

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.

The process of marking-to-market

Normal backwardation

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.

Delivery of stock index futures

Contango

An increase in the basis will a long hedger and a short hedger.

On April 1,you bought one S&P 500 index futures contract at a futures price of 950.If on June 15^th the futures price were 1012,what would be your profit (loss) if you closed your position (without considering transactions costs) ?