Question 1

Describe the differences between futures and forward contracts.

Accepted Answer

The answer of Describe the differences between futures and forward...

Question 2

If you determine that the DAX-30 Index futures is underpriced relative to the spot DAX-30 Index you could make an arbitrage profit by

Accepted Answer

If you think one asset is overpriced relative to another, you sell the overpriced asset and buy the other one.

Question 3

You purchased one oil future contract at $70 per barrel.What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel Assume the contract size is 1,000 barrels and there are no transactions costs.

Accepted Answer

$73.12 - $70.00 = $3.12 × 1,000 = $3,120.

Question 4

Discuss marking to market and margin accounts in the futures market.

Accepted Answer

The answer of Discuss marking to market and margin accounts...

Question 5

On January 1, the listed spot and futures prices of a Treasury bond were 95.4 and 95.6.You sold $100,000 par value Treasury bonds and purchased one Treasury bond futures contract.One month later, the listed spot price and futures prices were 95 and 94.4, respectively.If you were to liquidate your position, your profits would be

Accepted Answer

On bonds: $95,125 - $95,000 = $125; On futures: $94,125.00 - $95,187.50 = -$1,062.50; Net profits: $125 - $1,062.50; = -$937.50.

Question 6

If you determine that the DAX-30 Index futures is overpriced relative to the spot DAX-30 Index you could make an arbitrage profit by

Accepted Answer

If you think one asset is overpriced relative to another, you sell the overpriced asset and buy the other one.

Question 7

Distinguish between the short and long positions in futures transactions.

Accepted Answer

The answer of Distinguish between the short and long positions...

Question 8

Which one of the following statements regarding "basis" is true
I. The basis is the difference between the futures price and the spot price.
II. The basis risk is borne by the hedger.
III. A short hedger suffers losses when the basis decreases.
IV. The basis increases when the futures price increases by more than the spot price.

Accepted Answer

A decrease in the basis will benefit the short hedger.

Question 9

You purchased the following futures contract today at the settlement price listed in the Wall Street Journal.Answer the questions below regarding the contract.

Accepted Answer

The answer of You purchased the following futures contract today...

Question 10

You sold one oil future contract at $70 per barrel.What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel Assume the contract size is 1,000 barrels and there are no transactions costs.

Accepted Answer

$70.00 - $73.12 = -$3.12 × 1,000 = -$3,120.

Question 11

Describe the types of traders that are active in the futures markets.Explain why each type is in the markets and how their goals differ.Give an example of how each might use the market.

Accepted Answer

The answer of Describe the types of traders that are...

Quiz 22: Futures Markets