Davidson; Management - 3rd Australasian Edition



1.
An investor who purchases futures exchange is protected from default risk by
A.
depositing some cash with the broker
B.
requiring daily cash settlement of all contracts, called marking-to-market
C.
buying financial insurance
D.
paying a premium


2.
A hedger in the financial futures market
A.
seeks a position in the spot market to offset the price risk, which exists in the futures market.
B.
will purchase financial futures if holding financial assets in the spot market.
C.
seeks to offset the price risk in its spot market position with the nearly equal but opposite price risk of the futures position.
D.
will always short financial futures to perfect the hedge.


3.
The purchase of one million dollars of Treasury Notes, delivered in 60 days, from a government securities dealer is:
A.
a call.
B.
a swap.
C.
a forward contract.
D.
a put.


4.
Futures contracts differ from forward contracts in all of the following ways except:
A.
Forward contracts involve an intermediary or exchange.
B.
Futures contracts are standardized; forward contracts are not.
C.
Futures markets are more formal than forward markets.
D.
Delivery is made most often in forward contracts.


5.
What is the relationship between spot market prices and forward market prices of a good or financial asset?
A.
Spot prices represent expected forward prices.
B.
Forward prices are always higher than spot prices.
C.
Spot prices are always higher than forward prices.
D.
Forward prices are expected future spot prices.


6.
In a forward contract one party to the contract deals with
A.
the futures exchange.
B.
the counter-party of the forward contract.
C.
the opposite swap party.
D.
the hedger.


7.
Futures contracts differ from forward contracts in that
A.
futures contracts are between the individual hedger and speculator.
B.
futures contracts are personalized, unique contracts; forwards are standardized.
C.
futures contracts are marked to market daily with changes in value added or subtracted from buyer and seller.
D.
forward contracts always require a margin deposit.


8.
An investor planning to buy IBM stock in 30 days can protect himself against price risk by
A.
selling a IBM put option that matures in 30 days
B.
buying a IBM call option that matures in 30 days
C.
selling a IBM call option that matures in 30 days
D.
buying a IBM put option that matures in 30 days


9.
Which of the following intentionally assumes price risk?
A.
speculators
B.
hedgers
C.
traders
D.
both a and c


10.
The value of an option varies directly with:
A.
the price variance of the underlying commodity.
B.
the time to expiration.
C.
the level of interest rates.
D.
all of the above.


11.
An agreement with the futures exchange to buy is a ______ position; to sell, a ________ position?
A.
spot; futures
B.
high; low
C.
long; short
D.
short; long


12.
A margin call on a futures position, which has moved adversely, is called a(an) ______ margin requirement?
A.
initial
B.
maintenance
C.
ante
D.
daily settlement


13.
The price sensitivity rule may help
A.
determine the number of futures contracts to trade.
B.
present conditions for a hedge to occur.
C.
determine the relative price variability of a futures contract and underlying assets given a change in interest rates.
D.
all of the above.


14.
All of the following will gain if the price of any underlying instrument falls except:
A.
the seller of a futures contract
B.
the buyer of a put
C.
the writer of a call
D.
the buyer of a futures contract


15.
Daily changes in futures prices means one party (hedger or speculator) gained; another lose money on the contract. How are the exchanges able to keep the "daily" loser in the contract and prevent default?
A.
by the threat of bankruptcy
B.
by daily margin calls if needed
C.
by loans
D.
by guarantees by third parties


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