Homework on Chapter 22

1.

____ buy and sell futures contracts to offset an otherwise risky position in the spot
market.
a.
Speculators
b.
Floor brokers
c.
Market makers
d.
Hedgers

2.

Futures contracts are standardized in terms of ____ as well as the type of asset
that is permissible for delivery.
a.
liability
b.
location
c.
delivery
d.
markets

3.

The process of adjusting the equity in an investors account in order to reflect the
change in the daily settlement price of the futures contract is known as
a.
normal contango
b.
the triple witching hour
a.
marking to market
b.
hedging long

4.

The difference between the current spot price of an asset and the corresponding
futures price is known as the ___ for the futures.
a.
spread
b.
cost of carry
c.
basis
d.
index arbitrage

5.

Unlike an options contract, futures contracts ____ that both parties involved do
something at the end of the life of the contract.
a.
require
b.
do not require
c.
remain unclear
d.
suggest

6.

A fried chicken restaurant buys chicken futures. It is a

a.
long hedger.
b.
mixed investor.
c.
long speculator.
d.
short speculator.

7.

A CBT futures contract specifies the

a.
week of delivery.
b.
year of delivery.
c.
month of delivery.
d.
quarter of delivery.

8.

At the CBT, futures contracts are traded by

a.
secret ballot.
b.
computer matching.
c.
market makers.
d.
open outcry.

9.

To protect itself, the futures clearinghouse requires

a.
margin from the seller only.
b.
100% of the value from the seller.
c.
margin from both the buyer and seller.
d.
margin from the buyer only.

10.

The quarterly expiration of options on individual stocks, futures on market indices

and options on market index futures is called
a.
b.
c.
d.

doomsday.
triple truth or dare.
May Day.
triple witching hour.

11.

Which one of the following is an example of a long hedger?

a.
an oil refinery buying crude at spot oil prices
b.
a farmer who grows wheat and sells futures contracts short
c.
a trader who transacts in futures for the sole purpose of making profits
d.
a cereal producer who purchases wheat futures contracts

12.

______________ of futures markets.

a.
Hedging is a use
b.
Hedging and speculation are both uses
c.
Speculation is a use
d.
Margin buying of futures contracts is a use

13.

In order to insure stability, organized futures exchanges have standardized all of

the following EXCEPT
a.
market price
b.
time of delivery
c.
initial margins
d.
contract size

14.

The basis for a futures contract is

a.
current spot price/futures price.
b.
futures price X current spot price.
c.
current spot price - futures price.
d.
futures price/current spot price.

15.

What organized exchange mechanism reassures the futures buyer and seller that
the obligations of the other party will be fulfilled?
a.
b.
c.
d.

16.

the clearinghouse
the initial margin
marking to market
the maintenance margin

If funds rise above the initial margin requirement as a result of marking to market,
they may be
a.
b.
c.
d.

17.

automatically rolled over to purchase more of the same futures contracts

withdrawn by the clearinghouse and placed in an interest-bearing account
used to satisfy undermargined positions in other contracts
withdrawn by the investor

Futures contracts differ from forward contracts in that ________.

a.
futures contracts are standardized and performance of each party is
guaranteed by the clearinghouse
b.
futures contracts are standardized and require a daily settling of any gains
or losses
c.
futures contracts are standardized, performance of each party is guaranteed
by a clearing house, and they require a daily settling of any gains or losses
d.
performance is guaranteed by a process known as marking to market