Study guide questions 20 multiple choice

1. What contract did the Apple farmer and Pie Chain set up? According to the contract, when will the Chain buy the 1 million lbs of apples?

forward contract; in a year

future contract; in a year

forward contract; now

futures contract; now

agreement contract; whenever the apple farmer wants to sell

2. In the contract set up by the Apple farmer and Pie Chain, the $0.2 price is comparable to what rate in foreign exchange market?

spot rate

future spot rate

interest rate

forward rate

future rate

3. Which of the following is NOT used as underlying assets of forward contracts?

imports

Jet fuel

Gold

Canadian dollars

Barrels of oil

4. All except _____ are important components of forward contract.

Underlying assets

Delivery Date

Sport rate

Quantity

Specified price

5. Consider a oil forward contract with $50 per barrels of oil, 10,000 barrels, and delivery in 3 months. Suppose the oil price in 3 months is $55 dollars. We will _____ by buying one forward contract.

gain $5

neither gain nor loss

lose $50,000

gain $50,000

lose $5

6. What did the local brain do for the apple farmer and pie chain?

proved their transaction

certificated their contract

pay apple farmer

Standandized their forward contract

delivered apples to pie chain

7. The contract of 1000 lbs apples at price $0.2 per lbs and with delivery on Nov 15 is called _____.

agreement contract

future contract

forward contract

options contract

delivery contract

8. The exchange would like to take the _____ risk because it can ________ .

exchange rate; earn the spread from selling and buying futures contracts

counter-party; earn the spread from selling and buying futures contracts

counter-party; earn from selling futures contractss

exchange rate; earn from selling futures contracts

transaction; hedge the risk

9. Which of the following about a futures contract is wrong?

it involves margins.

it is traded over the counter

it has standardized contract terms

an agreement to exchange underlying asset for a pre-specified price at a specified date in future

similar to a forward contract

10. Which risk of futures contract can be reduced by the exchange clearing house?

economic risk

political risk

financial risk

default risk of counter party

exchange rate risk

11. Which of the following component is included in futures contract but not forward contract?

Underlying assets

Specified price

Delivery date

Type of delivery

Tick size

12. Higher the price of underlying assets benefits a ____ position of forward contracts, and Lower the price of underlying assets benefits a _____ position of futures contracts.

Group of answer choices

long; long

long; short

short; short

short; long

both long and short; both long and short

13. In the example of gold futures contract in the lecture video, the delivery date is ______, the date the ______ will occur.

May 20; transaction

Feb 20; payment

May 02; trade

May 20; payment

Feb 20; transaction

14. The minimum increment of price that will move by is called ____ . The minimum price fluctuation of the gold futures contract in the video is ______ per contract.

contract size; $10

contract size; $0.10

quantity size; $1

tick size; $0.10

tick size; $10

15. If we would like to buy 1000 troy oz. of gold using the gold futures contract in the lecture video, we buy _____ contracts and pay _____ in total.

100; $1,518,800

1; $1,518.80

10; $1,518,800

10; $151,880

100; $151,880

16. According to the example of oil futures contract in the video, an investor must deposit _____ to open 10 futures contract and maintain a balance of _____ to avoid the close of the account.

$30,000; $5,000

$50,000; $30,000

$30,000; $50,000

$3,000; $5,000

$5,000; $3,000

17. Which of the following futures contract uses only cash settlement?

S&P index futures

Corn futures

Lumber futures

Metal futures

Oil futures

18. Which of the following is NOT the advantage of futures contract over forward contract?

Daily settlement

Actively traded

Regulated

Quoted in public market

Customized to client needs

19. If South African rand is $0.20 in New York and $0.26 in Johannesburg, then under a two-point arbitrage, which of the following transactions will not occur?

selling of rand in Johannesburg

selling of dollars in Johannesburg

buying of rand in New York

selling of dollars in New York

buying of dollars in Johannesburg

Which of the following is not true about three-point arbitrage?

it is also called triangle arbitrage

can occur if cross rates between three countries are out of line

cannot occur between two currencies

can occur if dollar weakens

it is a transaction between three countries