Question 1

In the futures markets,arbitrageurs are mainly interested in:

Accepted Answer

A)   reducing their exposure to risk of price changes.
B)   attempting to make a profit by taking advantage of price differentials between different markets.
C)   increasing market liquidity.
D)   reducing the spread between the bid and ask prices on bonds.E) A) and B)
F) All of the above

Question 2

Large companies often prefer futures to FRAs because they are generally easy to close out compared with a forward contract.

Accepted Answer

A) True 
 B)False

Question 3

On the ASX Trade 24,financial futures contracts are currently traded on all the following securities,except:

Accepted Answer

A)   bank bills.
B)   Treasury bonds.
C)   corporate bonds.
D)   interest rate swaps.E) A) and B)
F) B) and C)

Question 4

Which of the following about hedging is incorrect?

Accepted Answer

A)   With the Australian future market an investor will have to use a 90-day bank-accepted-bill to hedge commercial paper.
B)   In the Australian futures market a borrower will have to use 3-year Treasury bond futures to hedge a loan facility with a term to maturity of 3 to 5 years.
C)   A borrower will have to use a 10-year Treasury bond future to hedge an issue of long-term debentures.
D)   When prices of 3-year Treasury bond futures varies over time with the prices of long-term debentures this is called spread-commodity hedging.E) All of the above
F) C) and D)

Question 5

The price of a short-term interest rate risk contract is generally derived from:

Accepted Answer

A)   traded equity prices.
B)   the money market instruments.
C)   an underlying FX contract.
D)   commodities.E) A) and C)
F) A) and B)

Question 6

Which of the following best describes the risks associated with futures contracts?

Accepted Answer

A)   The possibility of making an unexpected profit on a futures contract
B)   The probability of making a loss, or a fall in the value of a futures contract
C)   The variability of changing prices and costs associated with buying and selling futures contracts
D)   The possibility of loss associated with the default by the holder of the opposite position in the contractE) C) and D)
F) All of the above

Question 7

The Chicago Board of trade (CBOT) introduced the world's first financial (interest rate) futures contract in:

Accepted Answer

A)   1965.
B)   1975.
C)   1985.
D)   1995.E) A) and B)
F) All of the above

Question 8

If a futures contract holder fails to meet a margin call,the futures exchange clearing house will routinely close out the open position.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is a derivative product?

Accepted Answer

A)   Commercial paper
B)   Mortgage
C)   Futures
D)   Treasury noteE) None of the above
F) C) and D)

Question 10

In the futures markets,the buyer of a financial futures contract:

Accepted Answer

A)   takes the short position.
B)   has the obligation to deliver the underlying financial asset at the specified future date.
C)   has the obligation to receive the underlying financial asset at the specified future date.
D)   has to record the contract with the clearing house.E) None of the above
F) All of the above

Question 11

A futures trader who has a _______ position in oil futures wants the price of oil to _______ in the future.

Accepted Answer

A)   short; double
B)   short; fall
C)   short; stay the same
D)   short; riseE) A) and D)
F) B) and D)

Question 12

An orange grower who is concerned that the price of oranges will fall before harvest and sale can:

Accepted Answer

A)   buy an orange futures contract today.
B)   sell an orange futures contract today.
C)   carry out in the futures market the opposite of what he plans to do in the physical market when his crop is ready for sale.
D)   take a long position in orange futures.E) C) and D)
F) None of the above

Question 13

Which of the following about futures orders is incorrect?

Accepted Answer

A)   The order generally specifies whether it is a buy or sell order.
B)   The order specifies the type of contract and the delivery month.
C)   The orders are put into the trading system on the basis of size details any price restrictions.
D)   The order specifies the time limit on the order.E) A) and B)
F) A) and C)

Question 14

A lender,worried that the value of their loan might fall during the term of the loan,can hedge this fall by:

Accepted Answer

A)   buying futures contracts on Treasury bonds.
B)   selling futures contracts on Treasury bonds.
C)   buying Treasury bonds on the spot market.
D)   increasing now the amount of money that has been lent.E) A) and B)
F) A) and C)

Question 15

Discuss in relation to the Australian 10-year Treasury bond contract how it may be used to hedge a longer term interest rate exposure.

Accepted Answer

If two companies have different and oppo...

Question 16

In the futures markets,speculators who strongly believe that interest rates will fall are likely to:

Accepted Answer

A)   go long and buy futures contracts on Treasury bonds.
B)   go short and sell futures contracts on Treasury bonds.
C)   sell Treasury bonds on the spot market.
D)   decrease the amount of money that they currently lend.E) B) and C)
F) C) and D)

Question 17

The over-the-counter derivative product used to manage interest rate risk is a/an:

Accepted Answer

A)   futures contract.
B)   forward rate agreement.
C)   yield rate agreement.
D)   duration agreement.E) C) and D)
F) A) and B)

Question 18

A funds manager manages a diversified Australian share portfolio,but is concerned that stock prices in the market will fall over the next three months.The manager decides to hedge the risk by selling 100 S&P/ASX All Ordinaries Share Price Index futures contracts at 23.55.Three months later,when the manager closes out the position,the contract is trading at 24.10.Calculate the profit or loss position of the futures transactions.

Accepted Answer

A)   $5500 loss
B)   $24 100 profit
C)   $137 500 loss
D)   $550 000 profitE) C) and D)
F) All of the above

Question 19

A bond trader who buys a Treasury bond futures contract at a yield of 6.25% per annum and then sells it at 5.5% per annum makes a profit on the contract.

Accepted Answer

A) True 
 B)False

Question 20

If a bond investor sells a three-year Commonwealth Treasury bond futures contract at 7 per cent and on delivery date the interest rate of Treasury bonds is higher than they expected at 8 per cent,they will have:

Accepted Answer

A)   gained money on their long position.
B)   lost money on their long position.
C)   lost money on their short position.
D)   gained money on their short position.E) B) and D)
F) All of the above

Exam 19: Future Contracts and Forward Rate Agreements

In the futures markets,the buyer of a financial futures contract:

Correct Answer
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Correct Answer
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The over-the-counter derivative product used to manage interest rate risk is a/an:

Correct Answer
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In the futures markets,arbitrageurs are mainly interested in:

Correct Answer
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The price of a short-term interest rate risk contract is generally derived from:

Correct Answer
verified

If a futures contract holder fails to meet a margin call,the futures exchange clearing house will routinely close out the open position.

Correct Answer
verified

A bond trader who buys a Treasury bond futures contract at a yield of 6.25% per annum and then sells it at 5.5% per annum makes a profit on the contract.

Correct Answer
verified

A futures trader who has a _ position in oil futures wants the price of oil to _ in the future.

Correct Answer
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Which of the following is a derivative product?

Correct Answer
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Which of the following about futures orders is incorrect?

Correct Answer
verified

An orange grower who is concerned that the price of oranges will fall before harvest and sale can:

Correct Answer
verified

In the futures markets,speculators who strongly believe that interest rates will fall are likely to:

Correct Answer
verified

Large companies often prefer futures to FRAs because they are generally easy to close out compared with a forward contract.

Correct Answer
verified

Discuss in relation to the Australian 10-year Treasury bond contract how it may be used to hedge a longer term interest rate exposure.

Correct Answer
verified
If two companies have different and oppo...
View Answer

On the ASX Trade 24,financial futures contracts are currently traded on all the following securities,except:

Correct Answer
verified

Which of the following about hedging is incorrect?

Correct Answer
verified

Which of the following best describes the risks associated with futures contracts?

Correct Answer
verified

If a bond investor sells a three-year Commonwealth Treasury bond futures contract at 7 per cent and on delivery date the interest rate of Treasury bonds is higher than they expected at 8 per cent,they will have:

Correct Answer
verified

A lender,worried that the value of their loan might fall during the term of the loan,can hedge this fall by:

Correct Answer
verified

The Chicago Board of trade (CBOT) introduced the world's first financial (interest rate) futures contract in:

Correct Answer
verified

Exam 19: Future Contracts and Forward Rate Agreements

In the futures markets,the buyer of a financial futures contract:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The over-the-counter derivative product used to manage interest rate risk is a/an:

Correct AnswerverifiedShow Answer

In the futures markets,arbitrageurs are mainly interested in:

Correct AnswerverifiedShow Answer

The price of a short-term interest rate risk contract is generally derived from:

Correct AnswerverifiedShow Answer

If a futures contract holder fails to meet a margin call,the futures exchange clearing house will routinely close out the open position.

Correct AnswerverifiedShow Answer

A bond trader who buys a Treasury bond futures contract at a yield of 6.25% per annum and then sells it at 5.5% per annum makes a profit on the contract.

Correct AnswerverifiedShow Answer

A futures trader who has a _______ position in oil futures wants the price of oil to _______ in the future.

Correct AnswerverifiedShow Answer

Which of the following is a derivative product?

Correct AnswerverifiedShow Answer

Which of the following about futures orders is incorrect?

Correct AnswerverifiedShow Answer

An orange grower who is concerned that the price of oranges will fall before harvest and sale can:

Correct AnswerverifiedShow Answer

In the futures markets,speculators who strongly believe that interest rates will fall are likely to:

Correct AnswerverifiedShow Answer

Large companies often prefer futures to FRAs because they are generally easy to close out compared with a forward contract.

Correct AnswerverifiedShow Answer

Discuss in relation to the Australian 10-year Treasury bond contract how it may be used to hedge a longer term interest rate exposure.

Correct AnswerverifiedIf two companies have different and oppo...View AnswerShow Answer

On the ASX Trade 24,financial futures contracts are currently traded on all the following securities,except:

Correct AnswerverifiedShow Answer

Which of the following about hedging is incorrect?

Correct AnswerverifiedShow Answer

Which of the following best describes the risks associated with futures contracts?

Correct AnswerverifiedShow Answer

If a bond investor sells a three-year Commonwealth Treasury bond futures contract at 7 per cent and on delivery date the interest rate of Treasury bonds is higher than they expected at 8 per cent,they will have:

Correct AnswerverifiedShow Answer

A lender,worried that the value of their loan might fall during the term of the loan,can hedge this fall by:

Correct AnswerverifiedShow Answer

The Chicago Board of trade (CBOT) introduced the world's first financial (interest rate) futures contract in:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A futures trader who has a _ position in oil futures wants the price of oil to _ in the future.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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If two companies have different and oppo...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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