Question 1

Interest rate futures contracts are actively traded on the

Accepted Answer

Interest rate futures contracts are actively traded on various currencies including eurodollars, euroyen, and sterling, making all the options correct.

Question 2

Metals and energy currency futures contracts are actively traded on

Accepted Answer

The answer of Metals and energy currency futures contracts are...

Question 3

An investor with a long position in Treasury notes futures will profit if

Accepted Answer

When interest rates decline, the prices of existing Treasury notes increase because new issues will offer lower yields. An investor with a long position in Treasury notes futures would profit from this increase in prices.

Question 4

You purchased one wheat future contract at $5.04 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $4.98 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

The loss is calculated by taking the difference between the purchase price and the spot price at maturity, then multiplying by the contract size. Here, ($5.04 - $4.98) * 5,000 = $0.06 * 5,000 = $300 loss.

Question 5

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

To exploit the overpricing of S&P 500 Index futures relative to the spot S&P 500 Index, one would sell the overpriced futures and simultaneously buy the underlying stocks in the S&P 500 at their current lower spot prices. This strategy locks in a risk-free profit as the futures price converges to the spot price by the futures contract's expiration.

Question 6

You sold one corn future contract at $6.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $6.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

Selling a futures contract at a higher price than the spot price at maturity results in a profit. The difference per bushel is $6.29 - $6.10 = $0.19. For 5,000 bushels, the total profit is 0.19 * 5,000 = $950.

Question 7

To hedge a long position in Treasury bonds, an investor would most likely

Accepted Answer

Selling interest rate futures is a common strategy to hedge against the risk of rising interest rates, which would decrease the value of existing long positions in Treasury bonds.

Question 8

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

Accepted Answer

The basis is defined as the difference between the futures price and the spot price. Basis risk refers to the risk that the basis will change unfavorably. A short hedger actually benefits when the basis decreases because they are selling futures contracts and hoping to buy at a lower spot price later. Therefore, statement C is not true as it inaccurately suggests a short hedger suffers losses when the basis decreases.

Question 9

Metals and energy currency futures contracts are actively traded on

Accepted Answer

Metals such as gold and silver, and energy commodities like propane, are indeed subjects of futures contracts trading, reflecting the broad range of commodities that can be traded in futures markets.

Question 10

Foreign currency futures contracts are actively traded on the

Accepted Answer

Foreign currency futures contracts are actively traded on major currencies like the euro and British pound, but not on currencies like the drachma, which is no longer in active use as Greece has adopted the euro.

Question 11

You sold one wheat future contract at $6.04 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $5.98 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

Selling a futures contract at a higher price than the spot price at maturity results in a profit. The difference per bushel is $6.04 - $5.98 = $0.06. For 5,000 bushels, the total profit is 0.06 * 5,000 = $300.

Question 12

You purchased one corn future contract at $5.30 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $5.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Accepted Answer

The profit or loss is calculated by taking the difference between the purchase price and the spot price at maturity, then multiplying by the contract size. Here, the loss per bushel is $5.30 - $5.10 = $0.20. For 5,000 bushels, the total loss is $0.20 * 5,000 = $1,000.

Question 13

Which one of the following statements regarding "basis" is true?

Accepted Answer

The basis indeed is the difference between the futures price and the spot price. Basis risk, which is the risk that the basis will change unfavorably, is indeed borne by the hedger. Additionally, the basis does increase when the futures price increases by more than the spot price, as the basis is essentially the gap between these two prices.

Question 14

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

Accepted Answer

An increase in the basis benefits a long hedger because it means the spot price has increased relative to the futures price, improving their position. Conversely, it hurts a short hedger as they would have to pay more to close their position.

Question 15

To exploit an expected increase in interest rates, an investor would most likely

Accepted Answer

When interest rates are expected to increase, the value of existing bonds typically decreases because new bonds will be issued at the higher rates, making the older, lower-yielding bonds less attractive. Selling Treasury bond futures allows investors to profit from the anticipated drop in bond prices.

Question 16

Foreign currency futures contracts are actively traded on the

Accepted Answer

Foreign currency futures contracts are actively traded on various currencies, including the Japanese yen, Australian dollar, and Brazilian real, among others. These contracts are standardized agreements to buy or sell a currency at a future date, and they are traded on futures exchanges around the world.

Question 17

On January 1, you sold one April S&P 500 Index futures contract at a futures price of 3,420. If, on February 1, the April futures price was 3,430, what would be your profit (loss) if you closed your position (without considering transactions costs)?

Accepted Answer

The profit or loss from a futures contract is calculated by the difference in the sell and buy prices times the contract multiplier. For the S&P 500 Index futures, the contract multiplier is usually $250 per index point. Selling at 3,420 and buying back at 3,430 results in a 10 point loss. Therefore, the loss is 10 points * $250 = $2,500.

Question 18

You purchased one silver future contract at $2 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $3.50 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

The profit is calculated as (Spot Price - Purchase Price) * Contract Size = ($3.50 - $2.00) * 5,000 = $7,500 profit.

Question 19

On January 1, the listed spot and futures prices of a Treasury bond were 93.80 and 93.25. 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 94.50, respectively. If you were to liquidate your position, your profits would be a

Accepted Answer

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

Question 20

You sold one silver future contract at $2 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $3.50 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

Selling a futures contract means you agree to sell an asset at a set price at a future date. If the spot price at maturity is higher than the contract price, you incur a loss because you must sell the asset at a lower price than the market price. The loss per ounce is $1.50 ($3.50 - $2.00). For 5,000 ounces, the total loss is $7,500 (5,000 ounces * $1.50).

Quiz 22: Futures Markets

Interest rate futures contracts are actively traded on the

Metals and energy currency futures contracts are actively traded on

An investor with a long position in Treasury notes futures will profit if

You purchased one wheat future contract at $5.04 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $4.98 per bushel? Assume the contract size is 5,000 bushels 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 sold one corn future contract at $6.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $6.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

To hedge a long position in Treasury bonds, an investor would most likely

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

Metals and energy currency futures contracts are actively traded on

Foreign currency futures contracts are actively traded on the

You sold one wheat future contract at $6.04 per bushel. What would be your profit (loss) at maturity if the wheat spot price at that time were $5.98 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

You purchased one corn future contract at $5.30 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $5.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.

Which one of the following statements regarding "basis" is true?

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

To exploit an expected increase in interest rates, an investor would most likely

Foreign currency futures contracts are actively traded on the

On January 1, you sold one April S&P 500 Index futures contract at a futures price of 3,420. If, on February 1, the April futures price was 3,430, what would be your profit (loss) if you closed your position (without considering transactions costs) ?

You purchased one silver future contract at $2 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $3.50 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

You sold one silver future contract at $2 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is $3.50 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.