Futures Old Exam & Review Questions
You are a corn grower. You anticipate marking your corn in October. So you forward contract with your local elevator to deliver the corn at harvest for a price of $2.50 per bushel. Your cash position is now _______.
long
You are a corn grower. You are _______ corn. Your are ______ anhydrous ammonia.
long, short
In an "inverted market" deferred or distant futures prices are __________ than more nearby futures prices for storable commodities.
lower
*You produce milk and your typical basis is $-0.10 versus the nearby futures contract. If you hedge in the futures at $12.00 per hundredweight, then your expected net prices is: $12.10, $12.30, $11.70, $0.30, or none of these?
none of these
*You are the procurement manager for Lennar homes, a lumber company. In Chicago, your basis for lumber is $25.00 over nearby futures. The futures price is $275 per thousand board feet. You would hedge with ______ of futures and expect a cash price of ____ and you have a ____ basis position.
purchase, $300, weak
You are the procurement manager for Lenna Homes, a lumber company. In Chicago, your basis for lumber is $25.00 over nearby futures. The futures price is $275 per thousand board feet. You would hedge with the _________ of futures and expect a net price of ________ and you have a _______ basis position.
purchase, $300, wide
The market is currently inverted, and I think it should offer a positive carry. If I am right, I could earn a profit by
selling a contract with a nearby expiration and buying a contract with a later expiration.
*Margins in futures trading:
serve as a performance bond
You produce milk and your typical basis is $-0.30 versus the nearby futures contract. If you hedge in the futures at $12.00 per hundredweight, then your expected net price is _______.
$11.70
One basis point increment change for a Eurodollar contract in dollar terms is _______.
$25.
*One percentage point increment change for a eurodollar futures contract is ($1 million, 90-one day instrument) in dollar terms is ___________.
$2500
Suppose you enter into a short selling futures contract to sell July silver for %5.20 per ounce on New York Commodity Exchange. The size of the contract is 5,000 ounces. The initial margin is $4,000 and the maintenance margin is $3,000. Which of the following prices of silver futures will lead to a margin call?
$5.45 per ounce
*If an investor is long a contract at 43.20 that now trades at 46.90 to protect his gain, he places a sell stop at
46.0
If an investor is long a contract at 43.20 that now trades at 46.90, to protect his gain, he places a sell stop at
46.0
A customer shorts two soybean oil futures (60,000 lbs per contract) at $26.39 per cwt. If margin is $800 per contract, the ratio of margin to contract value is:
5.05%
An ethanol plant buys corn. They build one in my area. I should expect: A. The basis for corn to get stronger B. The basis for corn to get weaker C. Corn futures prices to increase D. There is not enough information to answer
A
Assuming your local cash price is generally quoted under the CBOT futures price, an increase in transportation costs in your area would be expected to: a. weaken the basis b. strengthen the basis c. no effect on the basis d. increase the local cash price
A
If I buy corn futures contract for July delivery for $2.40 per bushel, I have a legal obligation to accept delivery of corn in July at a warehouse on the Illinois River. a. True b. False
A
T or F: futures contract is legally binding on the parties, but does not require delivery unless the contract is held through the delivery period.
A
Which of the following best describes the term "Spot price" a. the price for immediate delivery b. the price for delivery at a future time c. the price of an asset that has been damaged d. the price of renting an asset
A
Which of the following describes the way the futures price of a foreign currency is quoted. a. the number of US dollars pet unit of foreign currency. b. the number of the foreign currency per US dollar c. some futures prices are always quoted as the number of U.S dollars per unit of the foreign currency and some are always quoted the other way round d. there are no quotation conventions for future prices
A
You sell one december futures contracts when the futures price is $1,010 per unit. Each contract is on 100 units and the initial margin per contract that you provide is $2,000. The maintenance margin per contract is $1,500. During the next day the futures price rises to $1,012 per unit. What is the balance of your margin account at the end of the ay? a. 1,800 b. 3,300 c. 2,200 d. 3,700
A
An investor sells a futures contract an asset when the futures price is $1,500. Each contract is on 100 units of the asset. The contract is closed out when the futures price is $1,540. Which of the following is true a. The investor has made a gain of $4,000 b. The investor has made a loss of $4,000 c. The investor has made a gain of $2,000 d. The investor has made a loss of $2,000
B
One futures contract is traded where both the long and short parties are closing out existing positions. what is the resultant change in open interest? a. no change b. decrease by one c. decrease by two d. increase by one
B
Which entity in the US takes primary resppnsibility for regulating futures market? a. federal reserve board b. commodities futures trading commission (CFTC) c. security and exchange commission d. US treasury
B
Who initiates delivery in a corn futures contract a. the party with the long position b. the party with the short position c. either party d. the exchange
B
You are a producer of soybeans, your harvest time cash basis is expected to be +0.05. You have placed a hedge to price your harvest time beans at $4.25 per bushel. You must have: a. bought soybean futures at $4.30 b. sold soybean futures at $4.20 c. bought soybean futures at $4.20 d. sold soybean futures at $4.30
B
*Your customer believes interest rates will rise, causing bond prices to fall. He short 30-year Dec 2017 T-bond trading 163-07, week later, the Dec 2017 T-bond is trading at 161-26 What is the profit or loss on this position, if commissions are ignored?
Gain of $1,406.25
A yield curve with a negative slope implies: a. economic slow down. b. futures prices for interest rate contracts are expected to fall. c. economic recession d. futures prices for interest rate contracts are expected to fall
C
Assume your supplier's cash market price is generally quoted over the CBOT futures price. If you hedge by purchasing a futures contract, a good time to purchase product and lift the hedge would be a. once you have hedged b. it makes no differerence c. when the basis is relatively weak d. when the basis is relatively strong e. whenever the cash market price is higher
C
Which of the following describes european options? a. sold in europe b. priced in euros c. exercisable only at maturity d. calls (there are no puts)
C
Which of the following is true a. both forward and futures contracts are traded on exchanges. b. forward contracts are traded on exchanges, but forward contracts are not c. futures contracts are traded on exchanges, but forward contracts are not. d. neither futures contracts are traded one xchanges
C
I am a buyer in the cash market. If basis ends up stronger than I expected: a. I will pay less than I expected b. Basis will not change once I hedge. c. What I pay will depend on whether futures prices went up or down. d. I will pay more than I expected
D
If I expect to get $2.90 from a hedge, and basis turns out 8 cents weaker than I expected, the actual price I get is: a. $2.90 b. $2.98 c. $3.00 d. $2.82
D
Which of the following describes contango? a. the futures price is below the expected future spot price b. the futures price is below todays spot price c. the futures price is declining function of the time to maturity d. the futures price is above the expected future spot price
D
*The most actively traded financial futures contract in the U.S is ____________ .
Eurodollar
*T of F: Gains or losses in a futures account are settled weekly.
False
*T or F: If a trader is bullish prices, then they will sell, or get long a futures contract.
False
*T or F: The first transaction that a trader makes in the futures market must be a buy or purchase.
False
*T or F: The initial margin required to trade futures is usually 95% of the contract value.
False
*T or F: futures contracts are negotiated between two private individuals, an they are common referred to as off-exchange derivatives.
False
A forward contract and futures contract are exactly the same.
False
T or F: A futures contract is not a derivative
False
T or F: A futures contract is not legally binding
False
T or F: According to the theory of normal backwardization, hedgers do not compensate speculators for assuming price risk associated with futures contracts.
False
T or F: Delivery occurs immediately when a futures contract is offset
False
T or F: Futures contracts are negotiated between two private individuals, and they are commonly referred to as off-exchange derivatives.
False
T or F: Gains or losses in a futures contract are exactly the same.
False
T or F: If I lose money in the futures market, I have to deposit money in my margin account to get its value back up to the maintenance margin.
False
T or F: If a trader is bullish prices, then they will sell, or get long a futures contract.
False
T or F: Nearly all futures contracts result in delivery of the underlying commodity.
False
T or F: The basis is 100% predictable
False
T or F: The first transaction that a trader makes in the futures market must be a buy or purchase.
False
T or F: The initial margin required to trade the futures is usually 95% of the contract value.
False
T or F: The maintenance margin is usually 5% of the initial margin.
False
T or F: as a farmer, you would want to store corn at harvest time if the futures market is inverted
False
T or F: convenience yield refers to producers' tendency to hold corn stocks on-farm to speculate on upward price movement.
False
T or F: margin calls only happen when futures prices rise.
False
T or F: strike prices are market determined
False
T or F: the "Cost-of-carry rule" is also applicable to commodities like lean hogs or live cattle.
False
* What guarantees the financial integrity of a futures contract?
Margin
*Where does a livestock futures price come from?
Prices are discovered through bids and offers between buyers and sellers.
Market symbol for No 11 sugar is
SB
*T of F: The clearing house guarantees the financial integrity of the futures market.
True
*T or F: Cash settlement is an alternative to a delivery settled futures contract
True
*T or F: Compared to the national weather service, the frozen concentrated orange juice is a better predictor of frost in Florida in the winter months
True
*T or F: If the price for contracts with more distant delivery dates is higher than that for contracts expiring earlier, the market is said to be in "Contango"
True
*T or F: The intersection of the demand and supply curves for storage can actually result in a negative price of storage.
True
T or F: A "yield curve" related return to risk.
True
T or F: Cash settlement is an alternative to a delivery settled futures contract.
True
T or F: Electronic trading is replacing the traditional open outcry method of futures trading.
True
T or F: Futures contracts are highly standardized.
True
T or F: If the basis is "25 under" and goes to "50 under" then it weakened.
True
T or F: One of the functions of futures contracts is to facilitate risk management.
True
T or F: The "cost of carry rule for storable commodities" say that distant futures prices cannot exceed the nearby futures price plus the total cost of carry between the two delivery periods.
True
T or F: The clearing house guarantees the financial integrity of the futures market.
True
T or F: at expiration futures contracts are settled by cash settlement or delivery
True
T or F: the "cost of carry rule for storable commodities" says that distant futures prices cannot exceed the nearby futures price plus the total cost of carry between the two delivery periods.
True
*When will a trader get a margin call on a short futures position?
When a futures market increase causes the margin account balance to fall below the specified maintenance level.
*You are a corn grower. You anticipate marketing your crop in October. So you forward contract with your local elevator to deliver the corn at harvest for a price of $2.50 per bushel. Your cash position is now ______.
long
A customer purchases a call option on COMEX gold futures and she exercises her option. The seller of the option will:
be assigned a short position in the underlying futures
*Futures prices are discovered by:
bids and offers
*The narrowing of the basis as we get closer to the delivery month is commonly referred to as:
convergence
The narrowing of the basis as we get closer to the delivery month is commonly referred to as __________.
convergence
*Gains and losses on futures positions are settled:
each day after the close of trading
* You are southwest airlines. You are an __________ of jet fuel with a ________ cash position. Therefore, you are a _______ hedger who will have a _____ basis position.
end-user, short, long, weak
*The primary function of CME clearing is to:
ensure the financial integrity of the contracts traded and clear every trade made at the CME Group.
Generally speaking the biggest users of futures markets are:
farmers, commercial hedgers, local traders
*Generally speaking, the biggest users of futures markets are
farmers, utility companies, airlines, and local traders,
Your customer believes interest rates will rise, causing bond prices to fall. He short 30-year Dec 2016 T-bond trading 163-07, week later, the Dec 2016 T-bond is trading at 161-26. What is the profit or loss on this position, if commissions are ignored with $100,000 par value per contract?
gain at $1,406.25
*The current price of T-bond contract is 94. Yesterday it was 94.5, this mean interest rates have _________.
gave up
The current price of a T-bond is 94. Yesterday is was 94.5, this means interest rates have:
gone up
What are the two types of traders in futures and options market?
hedgers and speculators
A sell stop limit order becomes activated when the commodity trades at the
stop price or below
A 20 year bond with coupon payment a year has a par value of $100,000. It's current price is $95,000. This means:
the interest used for the coupon payment is more than the current market interest rate.
The maximum potential loss for the buyer of a futures option is
the premium
*The total net cost of storage is specified by the "theory of price of storage" as a function of three components. Which of the following is not one of the components? a. physical costs of storage. b. risk aversion c. convenience yield d. transportation costs
transportation costs
*You may receive a margin if:
you have long (buy) futures position and prices decrease x, and if you have a short (sell) futures position and prices increase.