Derivatives Quiz 1

A company enters into a long futures contract to purchase 10,000 units of a commodity for $2.00 per unit. The initial margin is $3,000 and the maintenance mRGIN IS $2,300. WHAT IS THE FUTURES PRICE PER UNIT BELOW WHICH THERE WILL be a margin call?

$1,930

A one-year forward contract is an agreement where

One side of the contract has the obligation to purchase an asset for a certain price is one (1) year's time

A company knows it will receive a certain amount of foreign currency from one of its customers in the future. Which of the following is true?

A forward contract can be used to lock in the exchange rate

Which of the following is not true?

A.) A call option gives the holder the right to buy an asset by a certain date for a certain price B.) A put option gives the holder of the option the right to sell an asset by a certain date for a certain price C.) The holder of a forward contract is obligated to buy or sell an asset D.) The holder of a call or put option must exercise the right to sell or buy an asset D.

Which of the following is false?

A.) The holder of a swap contract is obligated to buy or sell an asset and the swap is financially settled B.) A put option gives the holder the right to sell an asset by a certain date for a certain price C.) The holder of a put or call option must exercise the right to sell or buy an asset D.) A call option gives the holder the right to buy an asset by a certain date for a certain price C.

Which of the following is not true

A.) an american option can be exercised B.) A call option will always be exercised at maturity if the underlying asset price is greater than (higher) than the strike price C.)A put option will always be exercised at maturity if the strike price is greater (higher) than the underlying asset price D.) when a CBOE call option on IBM is exercised, IBM issues more stock D.

Which entity of the United States takes primary responsibility for regulating futures markets?

CFTC- commodities futures trading commision

An investor sells a future contract on an asset when the futures price is $2,000. Each contract is on 100 units of the asset. The contract is closed out when the futures price is $1,780. Which of the following is true?

Investor has made a gain of $22,000

The price of a stock on May 1st is $110. A trader sells 100 put options on the stock with a strike price of $100 when the option price is $6.00. The options are exercised when the stock price is $90. the Traders net profit is?

Loss of $40,000

Which of the following is approximately true when size is measured in terms of the underlying principal amounts of value of the underlying assets?

The OTC market is 10x as big as the exchange trade market

Which of the following is not true about call and put options

The price of a put option increases as the strike price decreases

The frequency with which futures margin accounts are adjusted for gain and losses is:

daily

one futures contract is traded where both the long and the short parties are closing out existing positions. what is the resultant charge in the open interest?

decrease by 1

A limit order

is an order that can be executed at a specific price or one more favorable to the investor

A Market order

is an order to buy or sell a certain number of futures contracts at the best available price

Which of the following best describes a central clearing party.

it stands between two parties in the over the counter market

which of the following is true about a forward contract?

the contract becomes more valuable as the price of the underlying asset decreases

Which of the following best describes the term "spot price"?

the price for immediate delivery