The value of a futures contract for storable

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32. The value of a futures contract for storable commodities can be determined by the _______ and the model __________ consistent with parity relationships. A. CAPM, will be B. CAPM, will not be C. APT, will not be D. APT, will be E. A and D Both the CAPM and the APT can be used for this purpose and both will be consistent with parity relationships. Difficulty: Moderate 33. In the equation Profits = a + b*($/₤ exchange rate), b is a measure of The slope of a line that plots profits vs. exchange rates gives the average amount by which profits will change for each unit change in the exchange rate. Difficulty: Moderate 23-15
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Chapter 23 - Futures, Swaps, and Risk Management 34. You would like to take a position in the S&P500 stock index, but have decided to use market-index futures contracts and T-bills rather than actually purchasing the index. Your strategy will duplicate the payoff you would receive if you held the index and your goal is to time the market. If you want to minimize transactions costs and are bullish you should A. sell futures contracts and buy T-bills and shift back and forth between them as you expect the market to turn up or down. B. sell futures contracts and T-bills and shift back and forth between them as you expect the market to turn up or down. C. buy futures contracts and T-bills and shift back and forth between them as you expect the market to turn up or down. D. buy and hold futures contracts and shift in and out of T-bills as you expect the market to turn up or down. E. buy and hold T-bills and shift in and out of futures contracts as you expect the market to turn up or down. This strategy will duplicate the payoff of holding the index itself and will minimize transactions costs. Difficulty: Difficult You are given the following information about a portfolio you are to manage. For the long- term you are bullish, but you think the market may fall over the next month. 23-16
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Chapter 23 - Futures, Swaps, and Risk Management 35. If the anticipated market value materializes, what will be your expected loss on the portfolio? The change would represent a drop of (1200 - 1400)/1400 = 14.3% in the index. Given the portfolio's beta, your portfolio would be expected to lose 0.6 * 14.3% = 8.57% Difficulty: Moderate
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  • Spring '10
  • HAMZA
  • Management, Foreign exchange market

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