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Exam 15: Commodities and Financial Futures

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Question 41

True/False

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There is no limit to the amount of loss than can occur with a futures contract.

A) True
B) False

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Question 42

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The rate of return on a futures contract is based on the size of the initial margin deposit.

A) True
B) False

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Question 43

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Which of the following characteristics apply to futures contracts? I.Futures contracts are an important tool to control risk. II.Futures contracts are highly risky and involve speculation. III.Futures contracts specify both the quantity and the quality of the item. IV.The buyer must hold the contract until maturity.

In the futures markets, gains and losses in a contract's value are calculated every day and added to or subtracted from the trader's account.This procedure is called

Fred purchased a futures contract on live hogs through Broker A.After purchasing the contract, Fred moved his investments to Broker B.During the transition, the contract on the hogs was forgotten.When the delivery date for the futures contract arrived,

Interest rate futures are traded on all the following EXCEPT

The high rates of returns, either positive or negative, on futures contracts are primarily due to the high initial margin requirement.

The basic reason why investors use spreading strategies when speculating in commodities is to

To hedge a bond portfolio, an investor should use

Suppose you own a portfolio of British securities valued at $430,000.The exchange rate is currently at $1 = £0.57.A currency contract on British pounds is set at 62,500 pounds.How many contracts must you purchase to protect your portfolio from exchange rate risk?

Which of the following trading strategies are correct? I.If you expect the British pound to appreciate in value, you should short the pound. II.If you expect interest rates to rise, you should go long on interest rate futures. III.If you expect the stock market to rise, you should go long on stock-index futures. IV.If you expect the stocks in your portfolio to temporarily decline in value, you should short stock-index futures.

An investor's margin in a futures contract is checked each day under a procedure known as mark-to-the-market.

All futures contracts are traded on a margin basis.

Midge feels that the price of gold is going to fall because inflation is on the decline.To profit from her prediction, assuming she is correct, Midge should

The open interest at the end of the trading day indicates the volume of contracts traded during the day.

Speculators are especially interested in financial futures because price volatility can lead to potentially highly profitable outcomes.

The return on a futures contract is calculated as

Which one of the following statements concerning financial futures is correct?

Eric has just purchased a heating oil contract at $2.05 per gallon.The contract size is 21,000 gallons.Initial margin is $6,075; maintenance margin is $4,500.If the price of heating oil is $2.15 when the contract expires, Eric's profit or loss is ________

Investors can trade futures on electricity and natural gas.