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Exam 15: Futures and Risk Management

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Question 21

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If r_f is greater than d then we know that ________.

A) the futures price will be higher as contract maturity increases
B) F₀ < S₀
C) F_T > S_T
D) arbitrage profits are possible

E) A) and B)
F) C) and D)

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Question 22

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On Monday morning you sell one June T-bond futures contract at 97: 27 or for $97 843.75. The contract's face value is $100 000. The initial margin requirement is $2 700 and the maintenance margin requirement is $2 000 per contract. Use the following price data to answer the question. At the close of day Tuesday your cumulative rate of return on your investment is

A) 16.2%
B) -5.8%
C) -0.16%
D) -2.2%

E) None of the above
F) A) and B)

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Question 23

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You believe that the spread between the September T-bond contract and the June T-bond futures contract is too large and will soon correct. This market exhibits positive cost of carry for all contracts. To take advantage of this you should ________.

Initial margin is usually set in the region of ________ of the total value of a futures contract.

A market timer now believes that the economy will soften over the rest of the year as the housing market slump continues and he also believes that foreign investors will stop buying US fixed income securities in such large quantities as they have in the past. One way the timer could take advantage of this forecast is to ________.

A wheat farmer should ________ in order to reduce his exposure to risk associated with fluctuations in wheat prices.

When dividend paying assets are involved, the spot-futures parity relationship can be stated as ________.

An established value below which a trader's margin may not fall is called the ________.

The daily settlement of obligations on futures positions is called ________.

A long hedger will ________ from an increase in the basis a short hedger will ________.

In the context of a futures contract, the basis is defined as ________.

A futures contract ________.

A corporation will be issuing bonds in 6 months and the Treasurer is concerned about unfavorable interest rate moves in the interim. The best way for her to hedge the risk is to ________.

The price of a corn futures contract is $2.65 per bushel when the contract is issued and the commodity spot price is $2.55. When the contract expires, the two prices are identical. What principle is represented by this price behavior?

A short hedge is a simultaneous ________ position in the spot market and a ________ position in the futures market.

Ignoring the transaction costs, how much did the farmer improve his cash flow by hedging sales with the futures contracts?

Interest rate swaps involve the exchange of ________.

An investor establishes a long position in a futures contract now (time 0) and holds the position until maturity (Time T) . The sum of all daily settlements will be ________.

The open interest on silver futures at a particular time is the number of ________.

The clearing corporation has a net position equal to ________.