Question 1:

Basis risk is a concern when:

a. The date of the cash flow being hedged is different from the maturity date of the contract.

b. The maintenance margin requirement is too high.

Question 2:

The gains and losses from a futures contract over the life of the contract will be:

a. Approximately equal to the gains and losses from a comparable forward contract.

b. Approximately equal to zero.

Question 3:

The purpose of using a clearing house arrangement for futures contract is to:

a. minimize the credit risk problems.

b. reduce the volatility of the futures prices.

Question 4

Which one of the following is true of a futures contract?

a. The contract is marked to market every trading day.

b. The change in the futures price in any given day is equal to the change in the spot rate.

Question 5

The spot rate for euro is $1.10. One month ahead forward rate is $1.12. A non deliverable forward contract to buy 10,000 euros is entered into. If the end of the month the spot rate ends at $1.15 per euro what will be the gain received?

a. $500

b. $300