Fundamentals of Futures and Options Markets Essay

3252 Words Feb 18th, 2014 14 Pages
Fundamentals of Futures and Options Markets, 8e (Hull)
Chapter 1

Introduction

1) A one-year forward contract is an agreement where
A) One side has the right to buy an asset for a certain price in one year's time
B) One side has the obligation to buy an asset for a certain price in one year's time
C) One side has the obligation to buy an asset for a certain price at some time during the next year D) One side has the obligation to buy an asset for the market price in one year's time
Answer: B
2) Which of the following is NOT true?
A) When a CBOE call option on IBM is exercised, IBM issues more stock
B) An American option can be exercised at any time during its life
C) An call option will always be exercised at maturity if
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The maintenance margin per contract is $1,500. During the next day the futures price rises to $1,012 per unit. What is the balance of your margin account at the end of the day?
A) $1,800
B) $3,300
C) $2,200
D) $3,700
Answer: A
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6) A speculator takes a long position in a futures contract on a commodity on November 1, 2012 to hedge an exposure on March 1, 2013. The initial futures price is $60. On December 31, 2012 the futures price is $61. On March 1, 2013 it is $64. The contract is closed out on March 1, 2013.
What gain is recognized in the accounting year January 1 to December 31, 2013? Each contract is on 1000 units of the commodity.
A) $0
B) $1,000
C) $3,000
D) $4,000
Answer: C
7) Margin accounts have the effect of
A) Reducing the risk of one party regretting the deal and backing out
B) Ensuring funds are available to pay traders when they make a profit
C) Reducing systemic risk due to collapse of futures markets
D) All of the above
Answer: D
8) For a futures contract trading in April 2012, the open interest for a June 2012 contract, when compared to the open interest for Sept 2012 contracts, is usually
A) Higher
B) Lower
C) The same
D) Equally likely to be higher or lower
Answer: A
9) Which of the following best describes central clearing parties?
A) Help market participants to value derivative transactions
B) Must be used

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