Professional Documents
Culture Documents
Chapter 8: Structure of Forward and Futures Markets
Chapter 8: Structure of Forward and Futures Markets
2. Which of the following contract terms is not set by the futures exchange?
a. the dates on which delivery can occur
b. the expiration months
c. the deliverable commodities
d. the size of the contract
e. the price
3. Which of the following organizations has the ultimate regulatory authority in the futures industry?
a. National Futures Association
b. Commodity Futures Trading Commission
c. Commodity Exchange Authority
d. Securities and Exchange Commission
e. none of the above
5. If the initial margin is $5,000, the maintenance margin is $3,500 and your balance is $4,000, how much
must you deposit?
a. $6,000
b. $1,500
c. $9,000
d. nothing
e. none of the above
6. If the initial margin is $5,000, the maintenance margin is $3,500 and your balance is $3,100, how much
must you deposit?
a. $1,500
b. $400
c. $1,900
d. 0
e. none of the above
12. Which of the following is a trader on the floor of the futures exchange?
a. introducing broker
b. commission broker
c. commodity trading advisor
d. commodity pool operator
e. none of the above
14. Which of the following is the most actively traded U.S. futures contract?
a. S&P 500 Index
b. crude oil
c. Treasury bonds
d. Wheat
e. none of the above
17. One of the first automated trading systems that matched bids and offers implemented at the CME is called
a. COMEX
b. GLOBEX
c. LIFFE
d. CFTC
e. none of the above
20. The trading procedure on the floor of the futures exchange is referred to as
a. against actuals
b. open interest
c. open outcry
d. index participation
e. none of the above
21. A futures contract covers 5000 pounds with a minimum price change of $0.01 is sold for $31.60 per pound.
If the initial margin is $2,525 and the maintenance margin is $1,000, at what price would there be a margin
call?
a. 31.91
b. 32.11
c. 31.29
d. 31.09
e. 31.80
26. Individuals engaging in this type of trading strategy are characterized by their attempt to profit from
guessing the direction of the market
a. hedgers
b. spreaders
c. speculators
d. arbitraguers
e. none of the above
27. This financial instrument (sometimes referred to as a commodity option) permits the holder to buy if a call,
or to sell if a put, a specific underlying futures contract at a fixed price up to a specific expiration day
a. forward
b. futures option
c. swap
d. commodity swap
e. futures swap
28. Despite the fact that forward contracts carry more credit risk than futures contracts, forward contracts offer
what primary advantage over futures contracts?
a. the over-the-counter forward market is a highly regulated market
b. forward contracts prevent the writer from assuming the credit risk of the buyer
c. terms and conditions are tailored to the specific needs of the two parties involved
d. transaction information between the two parties involved in the forward contract is readily available to
the public
e. conditions of the forward contract, such as delivery date and location, cannot be altered
29. This individual takes a futures contract position that is opposite to the position in the spot market in order to
reduce risk
a. speculator
b. hedger
c. spreader
d. arbitrageur
e. trading advisor
30. Which of the following correctly orders the process of daily settlement?
a. clearinghouse officials establish a settlement price; each account is marked to market; accounts of those
holding long/short positions are credited/debited appropriately; differences between today’s
settlement price and the previous days settlement price are determined
31. The following process is the only type of permissible futures transaction that occurs off the floor of the
exchange
a. determination of the position day
b. determination of the delivery day
c. determination of a daily settlement price
d. offsetting
e. exchange for physicals
T F 1. Futures contracts are similar to forward contracts because they both represent a
commitment to buy something at a future time at a fixed price.
T F 5. One attraction of options on futures is that they trade side-by-side with the futures.
T F 6. Many futures contracts specify that there are several grades of a commodity that are
acceptable for delivery.
T F 7. Very few futures contracts are terminated in delivery of the underlying commodity or
security.
T F 8. Stock index futures contracts are terminated by delivery the portfolio of stocks represented
by the index.
T F 9. A limit move is when a futures price reaches its all time high or low price.
T F 10. Locals are futures traders who are in business for themselves.
T F 11. Scalping is a colorful term used to describe a futures trading style that involves aggressive,
emotional trading.
T F 14. When futures accounts are marked-to-market, an account balance below the maintenance
margin must be brought up to the initial margin.
T F 15. The most actively traded futures contract on a short-term financial instrument is Treasury
bill futures.
T F 16. Futures funds have typically provided outstanding returns to their investors.
T F 17. Because futures markets do not have designated market makers, there is no such thing as a
bid-ask spread.
T F 18. One party to a futures transaction does not bear the risk that the other party will default.
T F 19. The federal regulator of the futures markets is the National Futures Association.
T F 21. The largest futures exchange in the United States is the Chicago Mercantile Exchange.
T F 22. Firms that solicit futures trading business from the public are called Futures Commission
T F 23. Position traders are futures traders who take very large positions.
T F 24. The daily settlement procedure is a major difference between futures contracts and forward
contracts.
T F 25. There are no futures contracts on the Dow Jones Industrial Average.
T F 26. Options on futures contracts expire after the underlying futures contract expires.
T F 27. Less than half of futures contracts launched in the United States are successful.
T F 28. An arbitrageur operates by two rules, take risk and spend money.
T F 29. Each futures contract has both a long and a short position and counts as only one unit of
open interest.