Support is: the floor of a price range

Resistance is: the ceiling of a price range

Which of the following is acquired (in addition to a cash payoff) when the holder of a put futures
exercises? a short position in a futures contract

Which of the following is true for a September futures option? the delivery month of the
underlying futures contract is September

Which of the following is acquired (in addition to a cash payoff) when the holder of a call futures
exercises? a long position in a futures contract

A futures price is currently 40 cents. It is expected to move up to 44 cents or down to 34 cents in

the next six months. The risk-free interest rate is 6%. What is the probability of an up movement
in a risk-neutral world? 0.6

Futures contracts are: Standardized contracts to make or take delivery of commodity at a

predetermined place and time

Which of the following best describes the term "spot price": The price for immediate delivery

A company knows it will have to pay a certain amount of a foreign currency to one of its
suppliers in the future. Which of the following is true: A forward contract can be used to lock in
the exchange rate

Gains and losses on futures positions are settled: each day after the close of trading

Speculators: all of the above

A company enters into a long futures contact to buy 1,000 units of a commodity for %60 per
unit. The initial margin is $6,000 and the maintenance margin is $4,000. What futures price will
allow $2,000 to be withdrawn from the margin account? $62

Futures trading gains credited to a customer's margin account can be withdrawn by the customer:
as soon as the funds are credited

You may receive a margin call if: you have a long (buy) futures position and prices decrease

Hedging involves: taking a futures position opposite to one's current cash market position

What happens to the obligations of most futures contracts used in a hedge? taking a futures
position opposite to one's current cash market position

What happens to the obligations of most futures contracts used in a hedge? they are closed-out
by an offsetting transaction
Which of the following is the only variable element of a standardized futures contract? price

Futures contracts trade with every month as a deliver month. A company is hedging the purchase
of the underlying asset on June 15. Which futures contract should it use? The July contract

On March 1 a commodity's spot prices is $60 and its August futures price is $59. On July 1 the
spot prices is $64 and the August futures price is $63.50. A company entered into futures
contracts on March 1 to hedge its purchase of the commodity on July 1. It closed out its position
on July 1. What is the effective price (after taking account of hedging) paid by the company?
$59.50

A company due to pay a certain amount of a foreign currency n the future decides to hedge with
a futures contracts. Which of the folowing best describes the advantage of hedging? it leads to a
more predictable exchange rate being paid

The premise that makes hedging possible is cash and futures prices: generally change in the same
direction by similar amounts

What is the relationship between a cash market position and a futures market position in a
hedge? opposite of each other

Who is on the other side of a hedger's position? could be either a hedger or a speculator

Which of the following is true? the optimal hedge ration is the slope of the best fit line when the
change in the spot price (on the y-axis) is regressed against the change in the futures price (on the
x-axis)

Where does a commodity's future price come from? prices are discovered through bids and offers
between buyer and sellers

What market condition is necessary for an effective long hedge? Correlation between the cash
and futures market

Who are potential long livestock hedgers? all of the above

If price levels go lower after a short hedge is initiated, what are the results? loss in the cash
market and gain in the futures market

A farmer's crop is still in the field, his cash market position is: Long

Which market has an impact on the final net result of a long futures hedge? Both A and B cash
market; futures market

Which of the following describes a hedging strategy for a cattle feeder? short live cattle futures,
long corn futures, long feeder cattle futures
On March 1 the price of a commodity is $1,000 and the December futures price is $1015. On
November 1 the price is $980 and the December futures price is $981. A producer of the
commodity entered into a December futures contracts on March 1 to hedger the sale of the
commodity on November 1. It closed out its position on November 1. what is the effective price
(after taking account of hedging) received by the company for the commodity? $1,014

Suppose that the standard deviation of monthly changes in the price of commodity A is $2. The
standard deviation of monthly changes in a futures price for a contract on Commodity B ( Which
is similar to commodity A) is $3. The correlation between the futures price and the commodity
price is 0.9. What hedge ratio should be used when hedging a one month exposure to the price of
commodity A? 0.60

Which of the following describes tailing the hedge? none of the above

The term basis is: the difference between the local cash price and a futures price

What will benefit a long hedge after it is initiated? Weaker basis

What happens if a cash market price gains relative to a futures price over time? basis strengthens
and benefits the short hedger

If you estimate the local cash price will be 15 under the March futures price at the time you
deliver your corn, the approximate net selling price you can lock in b selling a march futures
contract is $5.50 is: $5.35

Assume your supplier's cash market price is generally quoted over the CME Group's futures
price. If you hedge by purchasing a futures contract, a good time to purchase the physical
product and lift the hedge would be: when the basis is relatively weak

An investor shorts 100 shares when the share price is $50 and closes out the position six months
later when the share price is $43. The shares pay dividends of $3 per share during the six months.
How much does the investor gain? $400

The spot price of an investment asset that provides no income is $30 and the risk-free rate for all
maturities (with continuous compounding) is 10%. What is the three-year forward price? $40.50

A short forward contract that was negotiated some time ago will expire in three months and has a
delivery price of $40. The current forward price for three-month forward contract is $42. The
three month risk-free interest rate (with continuous compounding) is 8%. What is the value of the
short forward contract? -$1.96

Consider an asset with futures contracts trades every month as a delivery month and contracts
expire at the end of each month. A company hedging the purchase of the underlying asset on
Dec. 10, 2017. Which futures contract should the company use? The January 2018 contract
The basis defines as spot minus futures. A trader is hedging the purchase of an asset with long
futures position. The basis increase unexpectedly. Which of the following is true? Hedger's
position worsens

A one year forward contract is an agreement where: One side has the obligation to buy an asset
for a certain price in one year's time.

Which of the following is true? The convenience yield is always positive or zero.

For a hedge to be effective, what is necessary? Short cash and long futures

A one-year forward contract is an agreement where: One side has the obligation to buy an asset
for a certain price in one year's time.

A futures market participant might receive a margin call if: He is long futures contracts and
prices fall

The basis is defined as spot minus futures. A trader is hedging the sale of an asset with a short
futures position. The basis increases unexpectedly. Which of the following is true? The hedger’s
position improves

Find the market value of a plain vanilla swap from the perspective of the fixed rate payer in
which the upcoming payment is in 30 days,and there is one more payment 180 days after
that.The fixed rate is 7 percent and the upcoming floating payment is at 6.5 percent.The notional
amount is $15 million.Assume 360 days in a year.The prices of Eurodollar zero coupon bonds
are 0.9934 (30 days)and 0.9528 (210 days). the fixed payer pays $71,527.50

To determine the fixed rate on a swap, you would: price it as the issuance of a fixed rate bond
and purchase of a floating rate bond or vice versa

Interest rate swaps are usually possible because international financial markets in different
countries are: imperfect

Interest rate swaps involve counterparties who want to: exchange a floating rate commitment for
a fixed rate loan

Mortgage companies may use interest rate swaps mainly because: they have short-term liabilities
and long-term assets

Parallel and back to back loans attained prominence in the 1970s when: the British government
imposed taxes on foreign currency transactions

Proper risk management involves a three-stage process. Which of the following is one of those
stages: identify where the risks lie
The amount of outstanding interest rate swaps is ..............than that of outstanding currency
swaps. larger

The basic motivations for swaps are shown below: all of the above

The first currency swap between the World Bank and IBM was arranged in 1981 by: Solomon
Brothers

The origins of the swap market are usually regarded as an outgrowth of the following financial
instruments: parallel loans; back to back loans

The shortcomings of parallel and back to back loans are: all of the above