1. Which of the following is true?
a. Forward contracts have no default risk.
b. Forward contracts are marked to market daily.
c. Forward contract buyers and sellers do not know who the counterparty is.
d. Futures contracts require an initial margin requirement be paid.
e. Futures contracts are only traded over the counter.
2. A long contract requires that the investor
a. sell securities in the future.
b. buy securities in the future.
c. hedge in the future.
d. close out his position in the future.
3. In most of the world's futures trading markets/exchanges, trading occurs using
a. floor brokers and specialists.
b. electronic trading platforms.
c. open-outcry auctions.
d. dealers trading from inventory.
4. Because the exchange serves as the counterparty to each trade, buyers and sellers of futures contracts are required to post margin. A daily mark to market occurs to adjust the margin accounts for changes in the value of the contract. If you are long futures, price _______________ over time will cause your margin account to decrease, which may lead to required payment of additional margin if the account reaches its _________________ level.
a. increases; initial margin
b. increases; maintenance margin
c. decreases; initial margin
d. decreases; maintenance margin
5. A forward contract to exchange cash flows based on the level of a specific interest rate index is called a(n)
a. forward rate agreement (FRA).
b. interest rate forward.
c. futures contract.
d. forward option.