Question 1

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

Accepted Answer

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

Question 2

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

The answer of You sold one oil future contract at...

Question 3

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

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

Question 4

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

The answer of You purchased one oil future contract at...

Question 5

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

Accepted Answer

The basis is indeed the difference between the futures price and the spot price (A). Basis risk is borne by the hedger (B). The basis increases when the futures price increases by more than the spot price (D).

Question 6

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...

Question 7

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

Question 8

If you determine that the DAX-30 index futures is under priced relative to the spot DAX-30 index you could make an arbitrage profit by

Accepted Answer

Buying DAX-30 index futures and selling all the stocks in the DAX-30 is the correct choice for arbitrage profit. This will allow the investor to capture the price differential between the spot and futures market. As the futures are undervalued, buying them and simultaneously selling the index stocks will result in a profit when the prices converge. The other choices involve selling options or short selling stocks, which carry their own risks and may not necessarily result in arbitrage profit.

Question 9

Describe the differences between futures and forward contracts.

Accepted Answer

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

Question 10

You purchased the following futures contract today at the settlement price listed in the Wall Street Journal.Answer the questions below regarding the contract.  - What is the total value of the futures contract?
- If there is a 10% margin requirement how much do you have to deposit?
- Suppose the price of the futures contract changes as shown in the following table.
- Enter the relevant information into the table.Show your calculations.
- Explain why the account is marked-to-market daily.

Accepted Answer

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

Question 11

Distinguish between the short and long positions in futures transactions.

Accepted Answer

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

Quiz 22: Equity Valuation Models