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26 Aug 2018

1. Which of the followings reduce(s) credit risk in futures contracts?

(1) Standardization of futures contracts

(2) Trading in exchanges

(3) Marking to market

A. Only (1)

B. Only (2)

C. Only (3)

D. Only (1) and (3)

E. All of (1), (2) and (3)

2. Let’s distinguish the meanings of transaction types of Buy, Sell, Short and Cover. If you want to speculate on price movement and expect the price of a certain option is expected to fall, then which transaction do you have to do?

A. buy

B. sell

C. short

D. cover

3. What does “contract size” mean in derivatives trades?

A. Number of contracts

B. Dollar value of one contract

C. Dollar value of the total contracts

D. Number of unit that denominates the asset per one contract

4. Suppose you are a speculator and expecting the price of soybeans to fall in three months. (You don’t have soybeans) Which transaction do you have to make in the futures market?

A. Buy

B. Sell

C. Short

D. Cover

5. Suppose you are a fund manager and worrying about risk arising from the uncertain performance of the market as a whole. In order to reduce risk, which position of index futures do you have to take?

A. Buy

B. Sell

C. Short

D. Cover

6. Which of the following conditions does NOT cause the basis risk in hedge using futures?

a. Length of time to hedge is shorter than the length of time for futures to expire.

b. Length of time to hedge is longer than the length of time for futures to expire.

c. The underlying asset of futures is not the same as the asset to be hedged

d. The amount to be hedged is different from the amount of futures contracts

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Deanna Hettinger
Deanna HettingerLv2
27 Aug 2018

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