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Exam 17: Futures Markets and Risk Management

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Question 1

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On Monday morning you sell one June T-bond futures contract at $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 following questions. After Monday's close the balance on your margin account will be ________.

A) $2,700
B) $2,000
C) $3,137.50
D) $2,262.50

E) A) and B)
F) All of the above

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C

Question 2

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A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn. What are the farmer's proceeds from the sale of corn?

A) $27,500
B) $31,875
C) $33,875
D) $35,950

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

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Question 3

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

The spot price of a futures contract is different than the price for which an investor can buy the underlying commodity for immediate delivery. This represents an opportunity for ________.

The fact that the exchange is the counterparty to every futures contract issued is important because it eliminates ________ risk.

The ________ is among the world's largest derivatives exchanges and operates a fully electronic trading and clearing platform.

The swap market is a huge component of the derivatives market, with around ________ in interest rate and exchange rate swap agreements outstanding.

On May 21, 2012, you could have purchased a futures contract from Intrade for a price of $5.70 that would pay you $10 if Barack Obama won the 2012 presidential election. This tells you ________.

The most actively traded interest rate futures contract is for ________.

On January 1, you sold one April S&P 500 Index futures contract at a futures price of 1,300. If the April futures price is 1,250 on February 1, your profit would be ________ if you close your position. (The contract multiplier is 250.)

A stock index spot price is $1,287. The zero coupon interest rate is 3.8%. What is the potential arbitrage profit if the 6-month futures contract on the index is priced at $1,350?

At contract maturity the basis should equal ________.

You purchase an interest rate futures contract that has an initial margin requirement of 15% and a futures price of $115,098. The contract has a $100,000 underlying par value bond. If the futures price falls to $108,000, you will experience a ________ loss on your money invested.

A hypothetical futures contract on a nondividend-paying stock with a current spot price of $100 has a maturity of 1 year. If the T-bill rate is 5%, what should the futures price be?

A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1-year risk-free rate is 3%. Based on the above data, which of the following set of transactions will yield positive riskless arbitrage profits?

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

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

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

Which one of the following exploits differences between actual future prices and their theoretically correct parity values?

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