Chap022 - Chapter 22 Futures Markets Multiple Choice Questions 1 A futures contract A is an agreement to buy or sell a specified amount of an asset

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Chapter 22 Futures Markets Multiple Choice Questions 1. A futures contract A) is an agreement to buy or sell a specified amount of an asset at the spot price on the expiration date of the contract. B) is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract. C) gives the buyer the right, but not the obligation, to buy an asset some time in the future. D) is a contract to be signed in the future by the buyer and the seller of the commodity. E) none of the above. Answer: B Difficulty: Easy Rationale: A futures contract locks in the price of a commodity to be delivered at some future date. Both the buyer and seller of the contract are committed. 2. The terms of futures contracts __________ standardized, and the terms of forward contracts __________ standardized. A) are; are B) are not; are C) are; are not D) are not; are not E) are; may or may not be Answer: C Difficulty: Easy Rationale: Futures contracts are standardized and are traded on organized exchanges; forward contracts are not traded on organized exchanges, the participant negotiates for the delivery of any quantity of goods, and banks and brokers negotiate contracts as needed. Bodie, Investments, Sixth Edition 1
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Futures Markets 3. Futures contracts __________ traded on an organized exchange, and forward contracts __________ traded on an organized exchange. A) are not; are B) are; are C) are not; are not D) are; are not E) are; may or may not be Answer: D Difficulty: Easy Rationale: See rationale for test bank question 22.2. 4. In a futures contract the futures price is A) determined by the buyer and the seller when the delivery of the commodity takes place. B) determined by the futures exchange. C) determined by the buyer and the seller when they initiate the contract. D) determined independently by the provider of the underlying asset. E) none of the above. Answer: C Difficulty: Moderate Rationale: The futures exchanges specify all the terms of the contracts except price; as a result, the traders bargain over the futures price. 5. The buyer of a futures contract is said to have a __________ position and the seller of a futures contract is said to have a __________ position in futures. A) long; short B) long; long C) short; short D) short; long E) margined; long Answer: A Difficulty: Moderate Rationale: The trader taking the long position commits to purchase the commodity on the delivery date. The trader taking the short position commits to delivering the commodity at contract maturity. The trader in the long position is said to "buy" the contract; the trader in the short position is said to "sell" the contract. However, no money changes hands at this time. 2
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This note was uploaded on 02/24/2010 for the course FINA 4310 taught by Professor Impson during the Spring '10 term at North Texas.

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Chap022 - Chapter 22 Futures Markets Multiple Choice Questions 1 A futures contract A is an agreement to buy or sell a specified amount of an asset

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