Question 1

To exploit an expected increase in interest rates, an investor would most likely
A)sell Treasury bond futures.
B)take a long position in wheat futures.
C)buy S&P 500 Index futures.
D)take a long position in Treasury bond futures.
E)None of the options

Accepted Answer

If interest rates rise, bond prices decrease.As bond prices decrease, the short position gains.Thus, if you are bearish about bond prices, you might speculate by selling T-bond futures contracts.

Question 2

Interest rate futures contracts are actively traded on the
A)eurodollars.
B)euroyen.
C)sterling.
D)eurodollars and euroyen.
E)All of the options

Accepted Answer

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

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
A)buying all the stocks in the S&P 500 and selling put options on the S&P 500 Index.
B)selling short all the stocks in the S&P 500 and buying S&P Index futures.
C)selling all the stocks in the S&P 500 and buying call options on the S&P 500 Index.
D)selling S&P 500 Index futures and buying all the stocks in the S&P 500.
E)None of the options

Accepted Answer

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

Question 4

Foreign currency futures contracts are actively traded on the
A)Japanese yen.
B)Australian dollar.
C)Brazilian real.
D)Japanese yen and Australian dollar.
E)All of the options

Accepted Answer

Foreign currency futures contracts are actively traded on multiple currencies, including the Japanese yen, Australian dollar, and others, making "All of the options" the correct choice.

Question 5

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
A)$125 loss.
B)$125 profit.
C)$12.50 loss.
D)$1,250 loss.
E)None of the options

Accepted Answer

On bonds: $94,000 - $93,250 = $750; On futures: $93,406.25 - $94,281.25 = -$875; Net profits: $750 - $875 = -$125.

Question 6

To hedge a long position in Treasury bonds, an investor most likely would
A)buy interest rate futures.
B)sell S&P futures.
C)sell interest rate futures.
D)buy Treasury bonds in the spot market.
E)None of the options

Accepted Answer

By taking the short position, the hedger is obligated to deliver T-bonds at the contract maturity date for the current futures price, which locks in the sales price for the bonds and guarantees that the total value of the bond-plus-futures position at the maturity date is the futures price.

Question 7

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.
A)$30 profit
B)$300 profit
C)$300 loss
D)$30 loss

Accepted Answer

$2.98 - $3.04 = -$0.06 × 5,000 = -$300.

Question 8

Metals and energy currency futures contracts are actively traded on
A)gold.
B)silver.
C)propane.
D)gold and silver.
E)All of the options

Accepted Answer

Metals like gold and silver, as well as energy commodities like propane, are all actively traded in futures markets.

Question 9

Metals and energy currency futures contracts are actively traded on
A)copper.
B)platinum.
C)weather.
D)copper and platinum.
E)All of the options

Accepted Answer

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

Question 10

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.
A)$30 profit
B)$300 profit
C)$300 loss
D)$30 loss

Accepted Answer

$3.04 - $2.98 = $0.06 × 5,000 = $300.

Question 11

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.
A)$5.50 profit
B)$5,500 profit
C)$5.50 loss
D)$5,500 loss

Accepted Answer

$4.10 - $3.00 = $1.10 × 5,000 = $5,500.

Question 12

Which one of the following statements regarding "basis" is not true
A)The basis is the difference between the futures price and the spot price.
B)The basis risk is borne by the hedger.
C)A short hedger suffers losses when the basis decreases.
D)The basis increases when the futures price increases by more than the spot price.

Accepted Answer

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

Question 13

Which one of the following statements regarding "basis" is true
A)The basis is the difference between the futures price and the spot price.
B)The basis risk is borne by the hedger.
C)A short hedger suffers losses when the basis decreases.
D)The basis increases when the futures price increases by more than the spot price.
E)The basis is the difference between the futures price and the spot price, basis risk is borne by the hedger, and basis increases when the futures price increases by more than the spot price.

Accepted Answer

The basis is the difference between the futures price and the spot price and is borne by the hedger.The basis increases when the futures price increases by more than the spot price.

Question 14

Agricultural futures contracts are actively traded on
A)rice.
B)sugar.
C)canola.
D)rice and sugar.
E)All of the options

Accepted Answer

Agricultural futures contracts are actively traded on rice, sugar, canola, and many other commodities, therefore, all of the options are correct.

Question 15

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.
A)$5.50 profit
B)$5,500 profit
C)$5.50 loss
D)$5,500 loss
E)None of the options

Accepted Answer

$3.00 - $4.10 = -$1.10 × 5,000 = -$5,500.

Question 16

An increase in the basis will __________ a long hedger and __________ a short hedger.
A)hurt; benefit
B)hurt; hurt
C)benefit; hurt
D)benefit; benefit
E)benefit; have no effect upon

Accepted Answer

If a contract and an asset are to be liquidated early, basis risk exists and futures price and spot price need not move in lockstep before delivery date.An increase in the basis will hurt the short hedger and benefit the long hedger.

Question 17

An investor with a long position in Treasury notes futures will profit if
A)interest rates decline.
B)interest rates increase.
C)the prices of Treasury notes decrease.
D)the price of the S&P 500 Index increases.
E)None of the options

Accepted Answer

Profit to long position = spot price at maturity - original futures price.

Question 18

Foreign currency futures contracts are actively traded on the
A)euro.
B)British pound.
C)drachma.
D)euro and British pound.
E)All of the options

Accepted Answer

Foreign currency futures contracts are actively traded on both the euro and British pound markets. While other currencies may also have futures contracts available, the question specifically asks for which options are actively traded, and the euro and pound are among the most widely traded currencies in the world.

Question 19

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.
A)$950 profit
B)$95 profit
C)$950 loss
D)$95 loss
E)None of the options

Accepted Answer

$2.29 - $2.10 = $0.19 × 5,000 = $950.

Question 20

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.
A)$950 profit
B)$95 profit
C)$950 loss
D)$95 loss
E)None of the options

Accepted Answer

$2.10 - $2.29 = -$0.19 × 5,000 = -$950.

Quiz 22: Futures Markets

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

Interest rate futures contracts are actively traded on the

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

Foreign currency futures contracts are actively traded on the

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

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.

Metals and energy currency futures contracts are actively traded on

Metals and energy currency futures contracts are actively traded on

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.

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.

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

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

Agricultural futures contracts are actively traded on

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.

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

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

Foreign currency futures contracts are actively traded on the

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.

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.