1.Futures contracts are:
(a)legally enforceable agreements to make or accept delivery of an asset on a specified date.
(b)informal agreements to make or accept delivery of an asset on a specified date at the spot price on that date.
(c)identical to forward contracts.
(d)identical to option contracts.
2.The settlement price of a futures contract is:
(a)the opening price for the contract.
(b)the average of high and low prices during the day.
(c)the price used to mark the contract to market at the end of the trading day.
(d)the average of the high and low trading prices during the life of the contract.
3.The process of marking futures contracts to market has the effect of:
(a)turning the futures contract into an option contract.
(b)turning the futures contract into a one-day forward contract.
(c)understandardizing the contract’s delivery date.
(d)making the futures contract a less expensive form of hedging than the forward contract.
4.Marking to market is generally thought to:
(a)reduce the performance and credit risks of futures contracts relative to forward contracts.
(b)increase the performance and credit risks of futures contracts relative to forward contracts.
(c)leave unchanged the performance and credit risks of futures contracts relative to forward contracts.
(d)increase the price variability of futures contracts relative to forward contracts.
5.Price limits are most likely to be associated with:
(a)option trading.
(b)forward contracts.
(c)FRAs.
(d)futures contracts.
6.Foreign-currency contracts are likely to be used to:
(a)hedge interest rate risk.
(b)hedge exchange rate risk.
(c)hedge inflation risk.
(d)hedge credit risk.
7.A person wanting to lock in an exchange rate for the payment of a foreign-currency obligation to someone else would:
(a)sell a foreign-currency futures contract.
(b)buy a foreign-currency futures contract.
(c)sell an interest-rate futures contract.
(d)buy an interest-rate futures contract.
8.Basis in futures-contract trading refers to:
(a)the daily change in the settlement price.
(b)the difference between the futures price and the forward price.
(c)the difference between the cash price and the futures price.
(d)the difference between the futures price and the strike price.
9.An example of an interest-rate futures contract is:
(a)a contract on British pounds.
(b)a contract on LIBOR.
(c)a contract on pork bellies.
(d)a contract on oil.
10.A basic relationship in financial futures pricing is that:
(a)the futures price should always equal the current spot price.
(b)the futures price should always be more than the spot price.
(c)the futures price should always be less than the spot price.
(d)the futures price discounted at the risk-free interest rate should be equal to the spot price less the present value of any forgone interest, dividend, or other cash payments.