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Chapter 17 - Futures Markets and Risk Management

Chapter 17
Futures Markets and Risk Management

Multiple Choice Questions

1. Recently most of the growth in the number of contracts traded on the Chicago Board of
rade has come in the !!!!!!! contracts.
". metals
B. agriculture
C. financial
#. commodity

$. " person with a long position in a commodity futures contract wants the price of the
commodity to !!!!!!.
". decrease substantially
B. increase substantially
C. remain unchanged
#. increase or decrease substantially

%. &f an asset price declines' the in(estor with a !!!!!!! is e)posed to the largest potential
loss.
". long call option
B. long put option
C. long futures contract
#. short futures contract

*. he clearing corporation has a net position e+ual to !!!!!!.
". the open interest
B. the open interest times two
C. the open interest di(ided by two
#. ,ero

17-1
Chapter 17 - Futures Markets and Risk Management
-. he ./0-11 inde) futures contract is an e)ample of a2n3 !!!!!! deli(ery contract. he
pork bellies contract is an e)ample of a2n3 !!!!!! deli(ery contract.
". cash4 cash
B. cash4 actual
C. actual4 cash
#. actual4 actual

5. 6hich one of the following contracts re+uires no cash to change hands when initiated7
". 8isted put option
B. .hort futures contract
C. Forward contract
#. 8isted call option

7. .ynthetic stock positions are commonly used by !!!!!! because of their !!!!!!.
". market timers4 lower transaction cost
B. banks4 lower risk
C. wealthy in(estors4 ta) treatment
#. money market funds4 limited e)posure

9. he time on Friday with simultaneous e)pirations of ./0 inde) futures' ./0 inde) options
and options on some indi(idual stocks is commonly called the !!!!!!!.
". mad minute
B. double-witching hour
C. happy hour
#. triple-witching hour

:. Futures contracts ha(e many ad(antages o(er forward contracts e)cept that !!!!!!!!!.
". futures positions are easier to trade
B. futures contracts are tailored to the specific needs of the in(estor
C. futures trading preser(es the anonymity of the participants
#. counterparty credit risk is not a concern on futures

17-$
Chapter 17 - Futures Markets and Risk Management
11. "n in(estor who is hedging a corporate bond portfolio using a -bond futures contract is
said to ha(e a2n3 !!!!!!!.
". arbitrage
B. cross-hedge
C. o(er-hedge
#. spread-hedge

11. he open interest on sil(er futures at a particular time is the number of !!!!!!!!!!.
". all outstanding sil(er futures contracts
B. long and short sil(er futures positions counted separately on a particular trading day
C. sil(er futures contracts traded during the day
#. sil(er futures contracts traded the pre(ious day

1$. "n in(estor who goes short in a futures contract will !!!!! any increase in (alue of the
underlying asset and will !!!!! any decrease in (alue in the underlying asset.
". pay4 pay
B. pay4 recei(e
C. recei(e4 pay
#. recei(e4 recei(e

1%. "n in(estor who goes long in a futures contract will !!!!! any increase in (alue of the
underlying asset and will !!!!! any decrease in (alue in the underlying asset.
". pay4 pay
B. pay4 recei(e
C. recei(e4 pay
#. recei(e4 recei(e

1*. he ad(antage that standardi,ation of futures contracts brings is that !!!!! is impro(ed
because !!!!!!!!!!!!!!!!!!!!.
". li+uidity4 all traders must trade a small set of identical contracts
B. credit risk4 all traders understand the risk of the contracts
C. pricing4 con(ergence is more likely to take place with fewer contracts
#. trading cost4 trading (olume is reduced

17-%
Chapter 17 - Futures Markets and Risk Management
1-. he fact that the e)change is the counter-party to e(ery futures contract issued is
important because it eliminates !!!!!!!!! risk.
". market
B. credit
C. interest rate
#. basis

15. &n the futures market the short position;s loss is !!!!!!!!!!! the long position;s gain.
". greater than
B. less than
C. e+ual to
#. sometimes less than and sometimes greater than

17. " wheat farmer should !!!!!!!!!! in order to reduce his e)posure to risk associated with
fluctuations in wheat prices.
". sell wheat futures
B. buy wheat futures
C. buy a contract for deli(ery of wheat now' and sell a contract for deli(ery of wheat at
har(est time
#. sell wheat futures if the basis is currently positi(e and buy wheat futures if the basis is
currently negati(e

19. 6hich of the following pro(ides the profit to a long position at contract maturity7
". <riginal futures price - .pot price at maturity
B. .pot price at maturity - <riginal futures price
C. =ero
#. Basis

1:. >ou take a long position in a futures contract of one maturity and a short position in a
contract of a different maturity' both on the same commodity. his is called !!!!!!!!!!.
". a cross hedge
B. a re(ersing trade
C. a spread position
#. a straddle

17-*
Chapter 17 - Futures Markets and Risk Management
$1. &nterest rate futures contracts e)ist for all of the following e)cept !!!!!!!!!!.
". Federal funds
B. ?urodollars
C. banker;s acceptances
#. repurchase agreements

$1. &nitial margin is usually set in the region of !!!!!!!! of the total (alue of a futures
contract.
". -@-1-@
B. 11@-$1@
C. 1-@-$-@
#. $1@-%1@

$$. Margin must be posted by !!!!!!!!.
". buyers of futures contracts only
B. sellers of futures contracts only
C. both buyers and sellers of futures contracts
#. speculators only

$%. he daily settlement of obligations on futures positions is called !!!!!!!!!!!!!.
". a margin call
B. marking to market
C. a (ariation margin check
#. initial margin re+uirement

$*. 6hich of the following pro(ides the profit to a short position at contract maturity7
". <riginal futures price - .pot price at maturity
B. .pot price at maturity - <riginal futures price
C. =ero
#. Basis

17--
Chapter 17 - Futures Markets and Risk Management
$-. Margin re+uirements for futures contracts can be met by !!!!!!!!!!!!!!.
". cash only
B. cash or highly marketable securities such as reasury bills
C. cash or any marketable securities
#. cash or warehouse receipts for an e+ui(alent +uantity of the underlying commodity

$5. "n established (alue below which a trader;s margin may not fall is called the !!!!!!!!.
". daily limit
B. daily margin
C. maintenance margin
#. con(ergence limit

$7. 6hich one of the following is a true statement7
". " margin deposit can only be met by cash
B. "ll futures contracts re+uire the same margin deposit
C. he maintenance margin is the amount of money you post with your broker when you buy
or sell a futures contract
#. he maintenance margin is the (alue of the margin account below which the holder of a
futures contract recei(es a margin call

$9. "t maturity of a future contract' the spot price and futures price must be appro)imately the
same because of !!!!!!!!!!.
". marking to market
B. the con(ergence property
C. the open interest
#. the triple witching hour

$:. " futures contract !!!!!!!!!!.
". is a contract to be signed in the future by the buyer and the seller of a commodity
B. is an agreement to buy or sell a specified amount of an asset at a predetermined price on
the e)piration date of the contract
C. is an agreement to buy or sell a specified amount of an asset at whate(er the spot price
happens to be on the e)piration date of the contract
#. gi(es the buyer the right' but not the obligation' to buy an asset some time in the future

17-5
Chapter 17 - Futures Markets and Risk Management
%1. 6hich one of the following e)ploits differences between actual future prices and their
theoretically correct parity (alues7
". &nde) arbitrage
B. Marking to market
C. Re(ersing trades
#. .ettlement transactions

%1. 6hich one of the following refers to the daily settlement of obligations on future
positions7
". Marking to market
B. he con(ergence property
C. he open interest
#. he triple witching hour

%$. 0robably the most acti(e forward market is for !!!!!!!!!!!!!.
". agricultural commodities
B. metals and minerals
C. financial futures
#. foreign currencies

%%. he CM? weather futures contract is an e)ample of !!!!!!!!!!!!!!.
". a cash settled contract
B. an agricultural contract
C. a financial future
#. a commodity future

%*. .ingle stock futures' as opposed to stock inde) futures' are !!!!!!!!!!!!!!!.
". not yet being offered by any e)changes
B. offered o(erseas but not in the A...
C. currently trading on <neChicago' a Boint (enture of se(eral e)changes
#. scheduled to begin trading in $111 at (arious e)changes

17-7
Chapter 17 - Futures Markets and Risk Management
%-. >ou are currently long in a futures contract. >ou then instruct a broker to enter the short
side of a futures contract to close your position. his is called !!!!!!!!!!.
". a cross hedge
B. a re(ersing trade
C. a speculation
#. marking to market

%5. " company which mines bau)ite decides to short aluminum futures. his is an e)ample of
!!!!!!!!!! to limit its risk.
". cross hedging
B. long hedging
C. spreading
#. speculating

%7. Futures markets are regulated by the !!!!!!!!!!.
". "&MR
B. CFC
C. C&"
#. .?C

%9. " hog farmer decides to sell hog futures. his is an e)ample of !!!!!!!!!! to limit its
risk.
". cross hedging
B. short hedging
C. spreading
#. speculating

17-9
Chapter 17 - Futures Markets and Risk Management
%:. <n February $-' $119 you could ha(e purchased a futures contract from &ntrade that
would pay you C1 if Barack <bama wins the $119 #emocratic 0arty nomination. "t a price of
C1.91' the contract for <bama carried the highest price of any #emocratic candidate. his
tells you !!!!!!!!!!!!!!!.
". that the market belie(ed that <bama had 91@ chance of winning
B. that the market belie(ed that <bama had the least chance of winning
C. nothing about the markets; belief concerning the odds of <bama winning
#. that the market belie(ed <bama;s chances of winning were about 1:@

*1. "n in(estor would want to !!!!!!!!!! to e)ploit an e)pected fall in interest rates.
". sell ./0 -11 inde) futures
B. sell treasury bond futures
C. buy treasury bond futures
#. buy wheat futures

*1. Forward contracts !!!!!!!!! traded on an organi,ed e)change and futures contracts
!!!!!!!!!! traded on an organi,ed e)change.
". are4 are
B. are4 are not
C. are not4 are
#. are not4 are not

*$. &f the ./0 -11 inde) futures contract is o(erpriced relati(e to the spot ./0 -11 inde)'
you should !!!!!!!!!!.
". buy all the stocks in the ./0 -11 and write put options on the ./0 -11 inde)
B. sell all the stocks in the ./0 -11 and buy call options on ./0 -11 inde)
C. sell ./0 -11 inde) futures and buy all the stocks in the ./0 -11
#. sell short all the stocks in the ./0 -11 and buy ./0 -11 inde) futures

17-:
Chapter 17 - Futures Markets and Risk Management
*%. " long hedge is a simultaneous !!!!!!!!!! position in the spot market and a
!!!!!!!!!! position in the futures market.
". long4 long
B. long4 short
C. short4 long
#. short4 short

**. &n(estors who take short positions in futures contract agree to !!!!!!!!!!! deli(ery of
the commodity on the deli(ery date' and those who take long positions agree to !!!!!!!!!!
deli(ery of the commodity.
". make4 make
B. make4 take
C. take4 make
#. take4 take

*-. "n in(estor would want to !!!!!!!!!! to hedge a long position in treasury bonds.
". buy interest rate futures
B. buy treasury bonds in the spot market
C. sell interest rate futures
#. sell ./0 -11 futures

*5. Futures contracts are said to e)hibit the property of con(ergence because
!!!!!!!!!!!!!!!.
". the profits from long positions and short positions must ultimately be e+ual
B. the profits from long positions and short positions must ultimately net to ,ero
C. price discrepancies would open arbitrage opportunities for in(estors who spot them
#. the futures price and spot price of any asset must ultimately net to ,ero

*7. &n the conte)t of a futures contract' the basis is defined as !!!!!!!!!!!!!!.
". the futures price minus the spot price
B. the spot price minus the futures price
C. the futures price minus the initial margin
#. the profit on the futures contract

17-11
Chapter 17 - Futures Markets and Risk Management
*9. he world;s largest futures and options e)change is the !!!!!!!.
". CB<?
B. CB<
C. CM?
#. ?ure)

*:. Diolation of the spot-futures parity relationship results in !!!!!!!!!!!!!!!.
". fines and other penalties imposed by the .?C
B. arbitrage opportunities for in(estors who spot them
C. suspension of deli(ery pri(ileges
#. suspension of trading

-1. 6hen di(idend paying assets are in(ol(ed' the spot-futures parity relationship can be
stated as !!!!!!!!!!!!!!!!!.
". F
1
E .
1
21 F r
f
3
B. F
1
E .
1
21 F r
f
- d3

C. F
1
E .
1
21 F r
f
F d3

#. F
1
E .
1
21 F r
f
3


-1. "n in(estor establishes a long position in a futures contract now 2time 13 and holds the
position until maturity 2ime 3. he sum of all daily settlements will be !!!!!!!!!!.
". F
1
- F

B. F
1
- .
1
C. F

- F
1
#. F

- .
1

-$. " short hedge is a simultaneous !!!!!!!!!! position in the spot market and a
!!!!!!!!!! position in the futures market.
". long4 long
B. long4 short
C. short4 long
#. short4 short

17-11
Chapter 17 - Futures Markets and Risk Management
-%. "ppro)imately !!!!!!!!!! of futures contracts result in actual deli(ery.
". 1@
B. 1@ to %@
C. -@ to 1-@
#. 51@ to 91@

-*. " long hedger will !!!!!!!!!! from an increase in the basis a short hedger will
!!!!!!!!!!.
". be hurt4 be hurt
B. be hurt4 profit
C. profit4 be hurt
#. profit4 profit

--. "t year end' ta)es on a futures position !!!!!!!!!!!!!!!.
". must be paid if the position has been closed out
B. must be paid if the position has not been closed out
C. must be paid regardless of whether the position has been closed out or not
#. need not be paid if the position supports a hedge

-5. " speculator will often prefer to buy a futures contract rather than the underlying asset
because !!!!!!!!!!!!.
&. gains in futures contracts can be larger due to le(erage
&&. transaction costs in futures are typically lower than in spot markets
&&&. futures markets are often more li+uid than the markets of the underlying commodities
". & and && only
B. && and &&& only
C. & and &&& only
#. &' && and &&&

17-1$
Chapter 17 - Futures Markets and Risk Management
-7. <n Ganuary 1' you sold one "pril ./0 -11 inde) futures contract at a futures price of
1%11. &f the "pril futures price is 1$-1 on February 1' your profit would be !!!!!!!!!! if
you close your position. 2he contract multiplier is $-1.3
". -C1$'-11
B. -C1-'111
C. C1-'111
#. C1$'-11

-9. he current le(el of the ./0 -11 is 1$-1. he di(idend yield on the ./0 -11 is %@. he
risk-free interest rate is 5@. he futures price +uote for a contract on the ./0 -11 due to
e)pire 5 months from now should be !!!!!!!!!!.
". 1$7*.%%
B. 1$95.:-
C. 1$59.51
#. 1$:1.$:

-:. he spot price for is C5-1. he di(idend yield on the ./0 -11 is $.-@. he risk-free
interest rate is -@. he futures price for gold for a one year contract should be !!!!!!!!!!.
". C5-9.-9
B. C57-.*%
C. C59$.-1
#. C555.$-

51. &f you e)pect a stock market downturn' one potential defensi(e strategy would be to
!!!!!!!!!!.
". buy stock inde) futures
B. sell stock inde) futures
C. buy stock inde) options
#. sell foreign e)change futures

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Chapter 17 - Futures Markets and Risk Management
51. "t contract maturity the basis should e+ual !!!!!!!!!!!.
". 1
B. 1
C. risk-free interest rate
#. -1

5$. >ou belie(e that the spread between the .eptember -bond contract and the Gune -bond
futures contract is too large and will soon correct. his market e)hibits positi(e cost of carry
for all contracts. o take ad(antage of this you should !!!!!!!!!!!!!!.
". buy the .eptember contract and sell the Gune contract
B. sell the .eptember contract and buy the Gune contract
C. sell the .eptember contract and sell the Gune contract
#. buy the .eptember contract and buy the Gune contract

" one year gold futures contract is selling for C5*1. .pot gold prices are C511 and the one
year risk free rate is 5@.

5%. he arbitrage profit implied by these prices is !!!!!!!!!!!!!.
". C%
B. C*
C. C-
#. C5

5*. Based on the abo(e data' which of the following set of transactions will yield positi(e
riskless arbitrage profits7
". Buy gold in the spot with borrowed money and sell the futures contract
B. Buy the futures contract and sell the gold spot and in(est the money earned
C. Buy gold spot with borrowed money and buy the futures contract
#. Buy the futures contract and buy the gold spot using borrowed money

17-1*
Chapter 17 - Futures Markets and Risk Management
5-. " hypothetical futures contract on a non-di(idend-paying stock with current spot price of
C111 has a maturity of one year. &f the -bill rate is -@ what should the futures price be7
". C:-.$*
B. C111
C. C11-
#. C117

55. " hypothetical futures contract on a non-di(idend-paying stock with current spot price of
C111 has a maturity of four years. &f the -bill rate is 7@ what should the futures price be7
". C75.$:
B. C:%.*5
C. C117.11
#. C1%1.19

<n Monday morning you sell one Gune -bond futures contract at :7H$7 or for C:7'9*%.7-.
he contract;s face (alue is C111'111. he initial margin re+uirement is C$'711 and the
maintenance margin re+uirement is C$'111 per contract. Ase the following price data to
answer +uestions 57 through 71.


57. "fter Monday;s close the balance on your margin account will be !!!!!!!!.
". C$'711.11
B. C$'111.11
C. C%'1%7.-1
#. C$'$5$.-1

59. "t the close of day uesday your cumulati(e rate of return on your in(estment is
". 15.$@
B. --.9@
C. -1.15@
#. -$.$@

17-1-
Chapter 17 - Futures Markets and Risk Management
5:. <n which of the gi(en days do you get a margin call7
". Monday
B. uesday
C. 6ednesday
#. Ione

71. >our cumulati(e rate of return on your in(estment after 6ednesday is aJan !!!!.
". 7:.:@ loss
B. $.5@ loss
C. %%.1@ gain
#. -%.:@ loss

71. he (olume of interest rate swaps increased from almost ,ero in 1:91 to o(er !!!!!!!!!!
today.
". C$1 million
B. C$11 million
C. C$11 billion
#. C$11 trillion

7$. &f r
f
is greater than d then we know that !!!!!!!!!!!!!!!.
". the futures price will be higher as contract maturity increases
B. F
1
K .
1
C. F

L .

#. arbitrage profits are possible



7%. .ahali rading Company has issued C111 million worth of long-term bonds at a fi)ed rate
of :@. .ahali rading Company then enters into an interest rate swap where they will pay
8&B<R and recei(e a fi)ed 9.11@ on a notional principal of C111 million. "fter all these
transactions are considered' .ahali;s cost of funds is !!!!!!!!!!.
". 17@
B. 8&B<R
C. 8&B<R F 1@
#. 8&B<R - 1@

17-15
Chapter 17 - Futures Markets and Risk Management
7*. &nterest rate swaps in(ol(e the e)change of !!!!!!!!!!!!!!!!.
". fi)ed rate bonds for floating rate bonds
B. floating rate bonds for fi)ed rate bonds
C. net interest payments and an actual principal swap
#. net interest payments based on notional principal' but no e)change of principal

7-. From the perspecti(e of determining profit and loss' the long futures position most closely
resembles a le(ered in(estment in a !!!!!!!!!!!!.
". long call
B. short call
C. short stock position
#. long stock position

75. he !!!!!!!!! contract dominates trading in stock inde) futures.
". ./0-11
B. #G&"
C. Iasda+ 111
#. Russell $111

77. he !!!!!!!! and the !!!!!!! ha(e the lowest correlations with the large-cap inde)es.
". Iasda+ Composite4 Russell $111
B. I>.?4 #G&"
C. ./0-114 #G&"
#. Russell $1114 ./0-11

79. he use of le(erage is practiced in the futures markets due to the e)istence of !!!!!!!!!.
". banks
B. brokers
C. clearinghouse
#. margin

17-17
Chapter 17 - Futures Markets and Risk Management
7:. >ou purchase an interest rate futures contract that has an initial margin re+uirement of
1-@ and a futures price of C11-'1:9. he contract has a C111'111 underlying par (alue bond.
&f the futures price falls to C119'111 you will e)perience a !!!!!! percent loss on your money
in(ested.
". %1
B. *1
C. -$
#. 5*

91. >ou own a C1- million bond portfolio with a modified duration of 11 years and you want
to limit your risk but institutional constraints prohibit trading the bond portfolio. -bond
futures are a(ailable with a modified duration of the deli(erable instrument of 9 years. he
futures are priced at C11-'111. he proper hedge ratio to use is !!!!!!.
". 11*
B. 1*%
C. 1:5
#. $1%

91. he price of a corn futures contract is C$.5- per bushel when the contract is issued and the
commodity spot price is C$.--. 6hen the contract e)pires' the two prices are identical. 6hat
principle is represented by this price beha(ior7
". Con(ergence
B. Margin
C. Basis
#. Dolatility

9$. " corporation will be issuing bonds in 5 months and the reasurer is concerned about
unfa(orable interest rate mo(es in the interim. he best way for her to hedge the risk is to
!!!!!!!!!!!!!!!!!.
". buy -bond futures
B. sell -bond futures
C. buy stock inde) futures
#. sell stock inde) futures

17-19
Chapter 17 - Futures Markets and Risk Management
" farmer sells futures contracts at a price of C$.7- per bushel. he spot price of corn is C$.--
at contract e)piration. he farmer har(ested 1$'-11 bushels of corn and sold futures contracts
on 11'111 bushels of corn.

9%. 6hat are the farmer;s proceeds from the sale of corn7
". C$7'-11
B. C%1'97-
C. C%%'97-
#. C%-':-1

9*. &gnoring the transaction costs' how much did the farmer impro(e his cash flow by hedging
sales with the futures contracts7
". C1
B. C$'111
C. C%1'97-
#. C%%'97-

9-. " bank has made long term fi)ed rate mortgages and has financed them with short term
deposits. o hedge out the bank;s interest rate risk they could !!!!!!!!.
". sell -bond futures
B. buy -bond futures
C. buy stock inde) futures
#. sell stock inde) futures

95. " market timer now belie(es that the economy will soften o(er the rest of the year as the
housing market slump continues and he also belie(es that foreign in(estors will stop buying
A... fi)ed income securities in such large +uantities as they ha(e in the past. <ne way the
timer could take ad(antage of this forecast is to !!!!!!!!!!!!!!!!.
". buy -bond futures and sell stock inde) futures
B. sell -bond futures and but stock inde) futures
C. buy stock inde) futures and buy -bond futures
#. sell stock inde) futures and sell -bond futures

17-1:
Chapter 17 - Futures Markets and Risk Management
97. he .tudent 8oan Marketing "ssociation 2.8M"3 has short term student loans funded by
long term debt. o hedge out this interest rate risk .8M" could !!!!!!!!!!!!!!.
&. engage in a swap to pay fi)ed and recei(e (ariable interest payments
&&. engage in a swap to pay (ariable and recei(e fi)ed interest payments
&&&. buy -bond futures
&D. sell -bond futures
". & and && only
B. & and &D only
C. && and &&& only
#. && and &D only

17-$1
Chapter 17 - Futures Markets and Risk Management
Chapter 17 Futures Markets and Risk Management "nswer Mey


Multiple Choice Questions

1. Recently most of the growth in the number of contracts traded on the Chicago Board of
rade has come in the !!!!!!! contracts.
". metals
B. agriculture
C. financial
#. commodity

Difficulty: Medium

$. " person with a long position in a commodity futures contract wants the price of the
commodity to !!!!!!.
". decrease substantially
B. increase substantially
C. remain unchanged
#. increase or decrease substantially

Difficulty: Easy

%. &f an asset price declines' the in(estor with a !!!!!!! is e)posed to the largest potential
loss.
". long call option
B. long put option
C. long futures contract
#. short futures contract

Difficulty: Medium

17-$1
Chapter 17 - Futures Markets and Risk Management
*. he clearing corporation has a net position e+ual to !!!!!!.
". the open interest
B. the open interest times two
C. the open interest di(ided by two
D. ,ero

Difficulty: Easy

-. he ./0-11 inde) futures contract is an e)ample of a2n3 !!!!!! deli(ery contract. he
pork bellies contract is an e)ample of a2n3 !!!!!! deli(ery contract.
". cash4 cash
B. cash4 actual
C. actual4 cash
#. actual4 actual

Difficulty: Medium

5. 6hich one of the following contracts re+uires no cash to change hands when initiated7
". 8isted put option
B. .hort futures contract
C. Forward contract
#. 8isted call option

Difficulty: Easy

7. .ynthetic stock positions are commonly used by !!!!!! because of their !!!!!!.
A. market timers4 lower transaction cost
B. banks4 lower risk
C. wealthy in(estors4 ta) treatment
#. money market funds4 limited e)posure

Difficulty: Medium

17-$$
Chapter 17 - Futures Markets and Risk Management
9. he time on Friday with simultaneous e)pirations of ./0 inde) futures' ./0 inde) options
and options on some indi(idual stocks is commonly called the !!!!!!!.
". mad minute
B. double-witching hour
C. happy hour
D. triple-witching hour

Difficulty: Easy

:. Futures contracts ha(e many ad(antages o(er forward contracts e)cept that !!!!!!!!!.
". futures positions are easier to trade
B. futures contracts are tailored to the specific needs of the in(estor
C. futures trading preser(es the anonymity of the participants
#. counterparty credit risk is not a concern on futures

Difficulty: Easy

11. "n in(estor who is hedging a corporate bond portfolio using a -bond futures contract is
said to ha(e a2n3 !!!!!!!.
". arbitrage
B. cross-hedge
C. o(er-hedge
#. spread-hedge

Difficulty: Medium

11. he open interest on sil(er futures at a particular time is the number of !!!!!!!!!!.
A. all outstanding sil(er futures contracts
B. long and short sil(er futures positions counted separately on a particular trading day
C. sil(er futures contracts traded during the day
#. sil(er futures contracts traded the pre(ious day

Difficulty: Easy

17-$%
Chapter 17 - Futures Markets and Risk Management
1$. "n in(estor who goes short in a futures contract will !!!!! any increase in (alue of the
underlying asset and will !!!!! any decrease in (alue in the underlying asset.
". pay4 pay
B. pay4 recei(e
C. recei(e4 pay
#. recei(e4 recei(e

Difficulty: Easy

1%. "n in(estor who goes long in a futures contract will !!!!! any increase in (alue of the
underlying asset and will !!!!! any decrease in (alue in the underlying asset.
". pay4 pay
B. pay4 recei(e
C. recei(e4 pay
#. recei(e4 recei(e

Difficulty: Easy

1*. he ad(antage that standardi,ation of futures contracts brings is that !!!!! is impro(ed
because !!!!!!!!!!!!!!!!!!!!.
A. li+uidity4 all traders must trade a small set of identical contracts
B. credit risk4 all traders understand the risk of the contracts
C. pricing4 con(ergence is more likely to take place with fewer contracts
#. trading cost4 trading (olume is reduced

Difficulty: Easy

1-. he fact that the e)change is the counter-party to e(ery futures contract issued is
important because it eliminates !!!!!!!!! risk.
". market
B. credit
C. interest rate
#. basis

Difficulty: Easy

17-$*
Chapter 17 - Futures Markets and Risk Management
15. &n the futures market the short position;s loss is !!!!!!!!!!! the long position;s gain.
". greater than
B. less than
C. e+ual to
#. sometimes less than and sometimes greater than

Difficulty: Easy

17. " wheat farmer should !!!!!!!!!! in order to reduce his e)posure to risk associated with
fluctuations in wheat prices.
A. sell wheat futures
B. buy wheat futures
C. buy a contract for deli(ery of wheat now' and sell a contract for deli(ery of wheat at
har(est time
#. sell wheat futures if the basis is currently positi(e and buy wheat futures if the basis is
currently negati(e

Difficulty: Easy

19. 6hich of the following pro(ides the profit to a long position at contract maturity7
". <riginal futures price - .pot price at maturity
B. .pot price at maturity - <riginal futures price
C. =ero
#. Basis

Difficulty: Easy

1:. >ou take a long position in a futures contract of one maturity and a short position in a
contract of a different maturity' both on the same commodity. his is called !!!!!!!!!!.
". a cross hedge
B. a re(ersing trade
C. a spread position
#. a straddle

Difficulty: Easy

17-$-
Chapter 17 - Futures Markets and Risk Management
$1. &nterest rate futures contracts e)ist for all of the following e)cept !!!!!!!!!!.
". Federal funds
B. ?urodollars
C. banker;s acceptances
D. repurchase agreements

Difficulty: Medium

$1. &nitial margin is usually set in the region of !!!!!!!! of the total (alue of a futures
contract.
A. -@-1-@
B. 11@-$1@
C. 1-@-$-@
#. $1@-%1@

Difficulty: Easy

$$. Margin must be posted by !!!!!!!!.
". buyers of futures contracts only
B. sellers of futures contracts only
C. both buyers and sellers of futures contracts
#. speculators only

Difficulty: Easy

$%. he daily settlement of obligations on futures positions is called !!!!!!!!!!!!!.
". a margin call
B. marking to market
C. a (ariation margin check
#. initial margin re+uirement

Difficulty: Easy

17-$5
Chapter 17 - Futures Markets and Risk Management
$*. 6hich of the following pro(ides the profit to a short position at contract maturity7
A. <riginal futures price - .pot price at maturity
B. .pot price at maturity - <riginal futures price
C. =ero
#. Basis

Difficulty: Easy

$-. Margin re+uirements for futures contracts can be met by !!!!!!!!!!!!!!.
". cash only
B. cash or highly marketable securities such as reasury bills
C. cash or any marketable securities
#. cash or warehouse receipts for an e+ui(alent +uantity of the underlying commodity

Difficulty: Easy

$5. "n established (alue below which a trader;s margin may not fall is called the !!!!!!!!.
". daily limit
B. daily margin
C. maintenance margin
#. con(ergence limit

Difficulty: Easy

$7. 6hich one of the following is a true statement7
". " margin deposit can only be met by cash
B. "ll futures contracts re+uire the same margin deposit
C. he maintenance margin is the amount of money you post with your broker when you buy
or sell a futures contract
D. he maintenance margin is the (alue of the margin account below which the holder of a
futures contract recei(es a margin call

Difficulty: Easy

17-$7
Chapter 17 - Futures Markets and Risk Management
$9. "t maturity of a future contract' the spot price and futures price must be appro)imately the
same because of !!!!!!!!!!.
". marking to market
B. the con(ergence property
C. the open interest
#. the triple witching hour

Difficulty: Easy

$:. " futures contract !!!!!!!!!!.
". is a contract to be signed in the future by the buyer and the seller of a commodity
B. is an agreement to buy or sell a specified amount of an asset at a predetermined price on
the e)piration date of the contract
C. is an agreement to buy or sell a specified amount of an asset at whate(er the spot price
happens to be on the e)piration date of the contract
#. gi(es the buyer the right' but not the obligation' to buy an asset some time in the future

Difficulty: Easy

%1. 6hich one of the following e)ploits differences between actual future prices and their
theoretically correct parity (alues7
A. &nde) arbitrage
B. Marking to market
C. Re(ersing trades
#. .ettlement transactions

Difficulty: Easy

%1. 6hich one of the following refers to the daily settlement of obligations on future
positions7
A. Marking to market
B. he con(ergence property
C. he open interest
#. he triple witching hour

Difficulty: Easy

17-$9
Chapter 17 - Futures Markets and Risk Management
%$. 0robably the most acti(e forward market is for !!!!!!!!!!!!!.
". agricultural commodities
B. metals and minerals
C. financial futures
D. foreign currencies

Difficulty: Medium

%%. he CM? weather futures contract is an e)ample of !!!!!!!!!!!!!!.
A. a cash settled contract
B. an agricultural contract
C. a financial future
#. a commodity future

Difficulty: Medium

%*. .ingle stock futures' as opposed to stock inde) futures' are !!!!!!!!!!!!!!!.
". not yet being offered by any e)changes
B. offered o(erseas but not in the A...
C. currently trading on <neChicago' a Boint (enture of se(eral e)changes
#. scheduled to begin trading in $111 at (arious e)changes

Difficulty: Easy

%-. >ou are currently long in a futures contract. >ou then instruct a broker to enter the short
side of a futures contract to close your position. his is called !!!!!!!!!!.
". a cross hedge
B. a re(ersing trade
C. a speculation
#. marking to market

Difficulty: Easy

17-$:
Chapter 17 - Futures Markets and Risk Management
%5. " company which mines bau)ite decides to short aluminum futures. his is an e)ample of
!!!!!!!!!! to limit its risk.
A. cross hedging
B. long hedging
C. spreading
#. speculating

Difficulty: Easy

%7. Futures markets are regulated by the !!!!!!!!!!.
". "&MR
B. CFC
C. C&"
#. .?C

Difficulty: Easy

%9. " hog farmer decides to sell hog futures. his is an e)ample of !!!!!!!!!! to limit its
risk.
". cross hedging
B. short hedging
C. spreading
#. speculating

Difficulty: Easy

%:. <n February $-' $119 you could ha(e purchased a futures contract from &ntrade that
would pay you C1 if Barack <bama wins the $119 #emocratic 0arty nomination. "t a price of
C1.91' the contract for <bama carried the highest price of any #emocratic candidate. his
tells you !!!!!!!!!!!!!!!.
A. that the market belie(ed that <bama had 91@ chance of winning
B. that the market belie(ed that <bama had the least chance of winning
C. nothing about the markets; belief concerning the odds of <bama winning
#. that the market belie(ed <bama;s chances of winning were about 1:@

Difficulty: Easy

17-%1
Chapter 17 - Futures Markets and Risk Management
*1. "n in(estor would want to !!!!!!!!!! to e)ploit an e)pected fall in interest rates.
". sell ./0 -11 inde) futures
B. sell treasury bond futures
C. buy treasury bond futures
#. buy wheat futures

Difficulty: Medium

*1. Forward contracts !!!!!!!!! traded on an organi,ed e)change and futures contracts
!!!!!!!!!! traded on an organi,ed e)change.
". are4 are
B. are4 are not
C. are not4 are
#. are not4 are not

Difficulty: Medium

*$. &f the ./0 -11 inde) futures contract is o(erpriced relati(e to the spot ./0 -11 inde)'
you should !!!!!!!!!!.
". buy all the stocks in the ./0 -11 and write put options on the ./0 -11 inde)
B. sell all the stocks in the ./0 -11 and buy call options on ./0 -11 inde)
C. sell ./0 -11 inde) futures and buy all the stocks in the ./0 -11
#. sell short all the stocks in the ./0 -11 and buy ./0 -11 inde) futures

Difficulty: Medium

*%. " long hedge is a simultaneous !!!!!!!!!! position in the spot market and a
!!!!!!!!!! position in the futures market.
". long4 long
B. long4 short
C. short4 long
#. short4 short

Difficulty: Medium

17-%1
Chapter 17 - Futures Markets and Risk Management
**. &n(estors who take short positions in futures contract agree to !!!!!!!!!!! deli(ery of
the commodity on the deli(ery date' and those who take long positions agree to !!!!!!!!!!
deli(ery of the commodity.
". make4 make
B. make4 take
C. take4 make
#. take4 take

Difficulty: Medium

*-. "n in(estor would want to !!!!!!!!!! to hedge a long position in treasury bonds.
". buy interest rate futures
B. buy treasury bonds in the spot market
C. sell interest rate futures
#. sell ./0 -11 futures

Difficulty: Medium

*5. Futures contracts are said to e)hibit the property of con(ergence because
!!!!!!!!!!!!!!!.
". the profits from long positions and short positions must ultimately be e+ual
B. the profits from long positions and short positions must ultimately net to ,ero
C. price discrepancies would open arbitrage opportunities for in(estors who spot them
#. the futures price and spot price of any asset must ultimately net to ,ero

Difficulty: Medium

*7. &n the conte)t of a futures contract' the basis is defined as !!!!!!!!!!!!!!.
A. the futures price minus the spot price
B. the spot price minus the futures price
C. the futures price minus the initial margin
#. the profit on the futures contract

Difficulty: Easy

17-%$
Chapter 17 - Futures Markets and Risk Management
*9. he world;s largest futures and options e)change is the !!!!!!!.
". CB<?
B. CB<
C. CM?
D. ?ure)

Difficulty: Medium

*:. Diolation of the spot-futures parity relationship results in !!!!!!!!!!!!!!!.
". fines and other penalties imposed by the .?C
B. arbitrage opportunities for in(estors who spot them
C. suspension of deli(ery pri(ileges
#. suspension of trading

Difficulty: Easy

-1. 6hen di(idend paying assets are in(ol(ed' the spot-futures parity relationship can be
stated as !!!!!!!!!!!!!!!!!.
". F
1
E .
1
21 F r
f
3
B. F
1
E .
1
21 F r
f
- d3

C. F
1
E .
1
21 F r
f
F d3

#. F
1
E .
1
21 F r
f
3


Difficulty: Medium

-1. "n in(estor establishes a long position in a futures contract now 2time 13 and holds the
position until maturity 2ime 3. he sum of all daily settlements will be !!!!!!!!!!.
". F
1
- F

B. F
1
- .
1
C. F

- F
1
#. F

- .
1

Difficulty: Medium

17-%%
Chapter 17 - Futures Markets and Risk Management
-$. " short hedge is a simultaneous !!!!!!!!!! position in the spot market and a
!!!!!!!!!! position in the futures market.
". long4 long
B. long4 short
C. short4 long
#. short4 short

Difficulty: Medium

-%. "ppro)imately !!!!!!!!!! of futures contracts result in actual deli(ery.
". 1@
B. 1@ to %@
C. -@ to 1-@
#. 51@ to 91@

Difficulty: Medium

-*. " long hedger will !!!!!!!!!! from an increase in the basis a short hedger will
!!!!!!!!!!.
". be hurt4 be hurt
B. be hurt4 profit
C. profit4 be hurt
#. profit4 profit

Difficulty: Medium

--. "t year end' ta)es on a futures position !!!!!!!!!!!!!!!.
". must be paid if the position has been closed out
B. must be paid if the position has not been closed out
C. must be paid regardless of whether the position has been closed out or not
#. need not be paid if the position supports a hedge

Difficulty: Medium

17-%*
Chapter 17 - Futures Markets and Risk Management
-5. " speculator will often prefer to buy a futures contract rather than the underlying asset
because !!!!!!!!!!!!.
&. gains in futures contracts can be larger due to le(erage
&&. transaction costs in futures are typically lower than in spot markets
&&&. futures markets are often more li+uid than the markets of the underlying commodities
". & and && only
B. && and &&& only
C. & and &&& only
D. &' && and &&&

Difficulty: Medium

-7. <n Ganuary 1' you sold one "pril ./0 -11 inde) futures contract at a futures price of
1%11. &f the "pril futures price is 1$-1 on February 1' your profit would be !!!!!!!!!! if
you close your position. 2he contract multiplier is $-1.3
". -C1$'-11
B. -C1-'111
C. C1-'111
D. C1$'-11
0rofit E 21%11 - 1$-132$-13 E 1$'-11

Difficulty: Medium

-9. he current le(el of the ./0 -11 is 1$-1. he di(idend yield on the ./0 -11 is %@. he
risk-free interest rate is 5@. he futures price +uote for a contract on the ./0 -11 due to
e)pire 5 months from now should be !!!!!!!!!!.
". 1$7*.%%
B. 1$95.:-
C. 1$59.51
#. 1$:1.$:
F
1
E .
1
21 F r
f
- d3

E 1$-121 F .15 - .1%3


.-
E 1$59.51

Difficulty: Medium

17-%-
Chapter 17 - Futures Markets and Risk Management
-:. he spot price for is C5-1. he di(idend yield on the ./0 -11 is $.-@. he risk-free
interest rate is -@. he futures price for gold for a one year contract should be !!!!!!!!!!.
". C5-9.-9
B. C57-.*%
C. C59$.-1
D. C555.$-
F
1
E .
1
21 F r
f
- d3

E 5-121 F .1- - .1$-3


1
E 555.$-

Difficulty: Medium

51. &f you e)pect a stock market downturn' one potential defensi(e strategy would be to
!!!!!!!!!!.
". buy stock inde) futures
B. sell stock inde) futures
C. buy stock inde) options
#. sell foreign e)change futures

Difficulty: Medium

51. "t contract maturity the basis should e+ual !!!!!!!!!!!.
". 1
B. 1
C. risk-free interest rate
#. -1

Difficulty: Easy

17-%5
Chapter 17 - Futures Markets and Risk Management
5$. >ou belie(e that the spread between the .eptember -bond contract and the Gune -bond
futures contract is too large and will soon correct. his market e)hibits positi(e cost of carry
for all contracts. o take ad(antage of this you should !!!!!!!!!!!!!!.
". buy the .eptember contract and sell the Gune contract
B. sell the .eptember contract and buy the Gune contract
C. sell the .eptember contract and sell the Gune contract
#. buy the .eptember contract and buy the Gune contract

Difficulty: Medium

" one year gold futures contract is selling for C5*1. .pot gold prices are C511 and the one
year risk free rate is 5@.

5%. he arbitrage profit implied by these prices is !!!!!!!!!!!!!.
". C%
B. C*
C. C-
#. C5
0arity F
1
E .
1
21 F r
f
- d3

E 51121 F .15 - 13
1
E 5%5.11
he arbitrage profit is C5*1 - C5%5 E C-.11

Difficulty: Medium

5*. Based on the abo(e data' which of the following set of transactions will yield positi(e
riskless arbitrage profits7
A. Buy gold in the spot with borrowed money and sell the futures contract
B. Buy the futures contract and sell the gold spot and in(est the money earned
C. Buy gold spot with borrowed money and buy the futures contract
#. Buy the futures contract and buy the gold spot using borrowed money
"ctual F
1
E C5*1' so the futures is o(erpriced. .ell futures today and buy gold spot with
borrowed money.

Difficulty: Medium

17-%7
Chapter 17 - Futures Markets and Risk Management
5-. " hypothetical futures contract on a non-di(idend-paying stock with current spot price of
C111 has a maturity of one year. &f the -bill rate is -@ what should the futures price be7
". C:-.$*
B. C111
C. C11-
#. C117
F
1
E .
1
21 F r3 E 111 21.1-3 E 11-

Difficulty: Medium

55. " hypothetical futures contract on a non-di(idend-paying stock with current spot price of
C111 has a maturity of four years. &f the -bill rate is 7@ what should the futures price be7
". C75.$:
B. C:%.*5
C. C117.11
D. C1%1.19
F
1
E .
1
21 F r3
*
E 111 21.173
*
E 1%1.19

Difficulty: Medium

<n Monday morning you sell one Gune -bond futures contract at :7H$7 or for C:7'9*%.7-.
he contract;s face (alue is C111'111. he initial margin re+uirement is C$'711 and the
maintenance margin re+uirement is C$'111 per contract. Ase the following price data to
answer +uestions 57 through 71.


17-%9
Chapter 17 - Futures Markets and Risk Management
57. "fter Monday;s close the balance on your margin account will be !!!!!!!!.
". C$'711.11
B. C$'111.11
C. C%'1%7.-1
#. C$'$5$.-1
C$'711 F 2C:7'9*%.7$ - C:7'*15.$-3 E C%'1%7.-1

Difficulty: Medium

59. "t the close of day uesday your cumulati(e rate of return on your in(estment is
". 15.$@
B. --.9@
C. -1.15@
#. -$.$@
Margin account E C%'1%7.-1 - 2C:9'111 - :7'*15.$-3 E C$'-*%.7-
Cumulati(e rate of return E

Difficulty: Medium

5:. <n which of the gi(en days do you get a margin call7
". Monday
B. uesday
C. 6ednesday
#. Ione
>our margin account falls below the maintenance margin of C$'111 after the market close on
6ednesday. >our margin call will be C$111 - 2$711 - 2111'111 - :7'9*%.7-33 E Cl'*-5.%-.

Difficulty: Medium

17-%:
Chapter 17 - Futures Markets and Risk Management
71. >our cumulati(e rate of return on your in(estment after 6ednesday is aJan !!!!.
A. 7:.:@ loss
B. $.5@ loss
C. %%.1@ gain
#. -%.:@ loss
Margin account E C$'-*%.7- - 2C111'111 - :9'1113 E C-*%.7-
Cumulati(e rate of return E

Difficulty: Hard

71. he (olume of interest rate swaps increased from almost ,ero in 1:91 to o(er !!!!!!!!!!
today.
". C$1 million
B. C$11 million
C. C$11 billion
D. C$11 trillion

Difficulty: Easy

7$. &f r
f
is greater than d then we know that !!!!!!!!!!!!!!!.
A. the futures price will be higher as contract maturity increases
B. F
1
K .
1
C. F

L .

#. arbitrage profits are possible



Difficulty: Easy

17-*1
Chapter 17 - Futures Markets and Risk Management
7%. .ahali rading Company has issued C111 million worth of long-term bonds at a fi)ed rate
of :@. .ahali rading Company then enters into an interest rate swap where they will pay
8&B<R and recei(e a fi)ed 9.11@ on a notional principal of C111 million. "fter all these
transactions are considered' .ahali;s cost of funds is !!!!!!!!!!.
". 17@
B. 8&B<R
C. 8&B<R F 1@
#. 8&B<R - 1@
Before the swap .ahali pays :@. "fter the swap .ahali recei(es 9@ minus 8&B<R. he cost
is of the swap is :@ - 29 - 8&B<R3 E 8&B<R F 1@

Difficulty: Medium

7*. &nterest rate swaps in(ol(e the e)change of !!!!!!!!!!!!!!!!.
". fi)ed rate bonds for floating rate bonds
B. floating rate bonds for fi)ed rate bonds
C. net interest payments and an actual principal swap
D. net interest payments based on notional principal' but no e)change of principal

Difficulty: Medium

7-. From the perspecti(e of determining profit and loss' the long futures position most closely
resembles a le(ered in(estment in a !!!!!!!!!!!!.
". long call
B. short call
C. short stock position
D. long stock position

Difficulty: Medium

17-*1
Chapter 17 - Futures Markets and Risk Management
75. he !!!!!!!!! contract dominates trading in stock inde) futures.
A. ./0-11
B. #G&"
C. Iasda+ 111
#. Russell $111

Difficulty: Easy

77. he !!!!!!!! and the !!!!!!! ha(e the lowest correlations with the large-cap inde)es.
A. Iasda+ Composite4 Russell $111
B. I>.?4 #G&"
C. ./0-114 #G&"
#. Russell $1114 ./0-11

Difficulty: Easy

79. he use of le(erage is practiced in the futures markets due to the e)istence of !!!!!!!!!.
". banks
B. brokers
C. clearinghouse
D. margin

Difficulty: Medium

7:. >ou purchase an interest rate futures contract that has an initial margin re+uirement of
1-@ and a futures price of C11-'1:9. he contract has a C111'111 underlying par (alue bond.
&f the futures price falls to C119'111 you will e)perience a !!!!!! percent loss on your money
in(ested.
". %1
B. *1
C. -$
#. 5*
Margin E 11-'1:9 ) .1- E 17'$5*.74 8oss @ E 211-'1:9 - 119'1113J17$5*.7 E - *1@

Difficulty: Medium

17-*$
Chapter 17 - Futures Markets and Risk Management
91. >ou own a C1- million bond portfolio with a modified duration of 11 years and you want
to limit your risk but institutional constraints prohibit trading the bond portfolio. -bond
futures are a(ailable with a modified duration of the deli(erable instrument of 9 years. he
futures are priced at C11-'111. he proper hedge ratio to use is !!!!!!.
". 11*
B. 1*%
C. 1:5
#. $1%
1:5 contracts' always round down

Difficulty: Hard

91. he price of a corn futures contract is C$.5- per bushel when the contract is issued and the
commodity spot price is C$.--. 6hen the contract e)pires' the two prices are identical. 6hat
principle is represented by this price beha(ior7
A. Con(ergence
B. Margin
C. Basis
#. Dolatility

Difficulty: Medium

9$. " corporation will be issuing bonds in 5 months and the reasurer is concerned about
unfa(orable interest rate mo(es in the interim. he best way for her to hedge the risk is to
!!!!!!!!!!!!!!!!!.
". buy -bond futures
B. sell -bond futures
C. buy stock inde) futures
#. sell stock inde) futures

Difficulty: Medium

17-*%
Chapter 17 - Futures Markets and Risk Management
" farmer sells futures contracts at a price of C$.7- per bushel. he spot price of corn is C$.--
at contract e)piration. he farmer har(ested 1$'-11 bushels of corn and sold futures contracts
on 11'111 bushels of corn.

9%. 6hat are the farmer;s proceeds from the sale of corn7
". C$7'-11
B. C%1'97-
C. C%%'97-
#. C%-':-1
Iet 0roceeds E 2$.7- ) 111113 F 2$.-- ) $-113 E %%'97-

Difficulty: Hard

9*. &gnoring the transaction costs' how much did the farmer impro(e his cash flow by hedging
sales with the futures contracts7
". C1
B. C$'111
C. C%1'97-
#. C%%'97-
Nain E 2$.7- - $.--311'111 E $'111

Difficulty: Easy

9-. " bank has made long term fi)ed rate mortgages and has financed them with short term
deposits. o hedge out the bank;s interest rate risk they could !!!!!!!!.
A. sell -bond futures
B. buy -bond futures
C. buy stock inde) futures
#. sell stock inde) futures

Difficulty: Hard

17-**
Chapter 17 - Futures Markets and Risk Management
95. " market timer now belie(es that the economy will soften o(er the rest of the year as the
housing market slump continues and he also belie(es that foreign in(estors will stop buying
A... fi)ed income securities in such large +uantities as they ha(e in the past. <ne way the
timer could take ad(antage of this forecast is to !!!!!!!!!!!!!!!!.
". buy -bond futures and sell stock inde) futures
B. sell -bond futures and but stock inde) futures
C. buy stock inde) futures and buy -bond futures
D. sell stock inde) futures and sell -bond futures

Difficulty: Hard

97. he .tudent 8oan Marketing "ssociation 2.8M"3 has short term student loans funded by
long term debt. o hedge out this interest rate risk .8M" could !!!!!!!!!!!!!!.
&. engage in a swap to pay fi)ed and recei(e (ariable interest payments
&&. engage in a swap to pay (ariable and recei(e fi)ed interest payments
&&&. buy -bond futures
&D. sell -bond futures
". & and && only
B. & and &D only
C. && and &&& only
#. && and &D only

Difficulty: Hard

17-*-