Mechanics of Futures Markets
Explain how margins protect investors against the possibility of default.
A margin is a sum of money deposited by an investor with his or her broker. It acts as a
guarantee that the investor can cover a
Foreign Exchange Futures
1. Suppose a U.S. investor buys shares on a foreign stock exchange. When the shares are
eventually sold, the holding period return will be
a. greater if the dollar appreciated relative to the foreign cu
Stock Index Futures
1. A characteristic of stock index futures is
a. they have limited risk.
b. they pay dividends monthly.
c. they are settled in cash.
d. they have a beta of zero.
2. If a stock index is 400.00, how
foreign currency is currently
The domestic and foreign risk-free
interest rates are 5% and 9%,
Calculate a lower bound for the
value of a six month European call
Chapter 2, 3, & 5
Problems and Questions
Use the CBOT quotes for wheat to
answer the following questions.
Suppose that you raise wheat and are
concerned about the volatility of the
price at the time you harvest.
Other Derivative Assets
1. A primary advantage of futures options is that they
a. require no cash outflow when purchased.
b. permit the adjustment of portfolio risk/return exposure.
c. are guaranteed by the Securities Excha