Sample MC Questions 2

Derivative Securities Pricing and Trading

Spring 2004

Dr. Alfonso Dufour


Q1: Suppose you buy a futures contract at $150. If the futures price changes to
$147, what is its value an instant before it is marked-to-market?
a. 0
b. $3
c. -$3
d. it is impossible to tell
e. none of the above

Q2: If futures prices are below spot prices, we say that
a. spot prices are expected to fall
b. there is backwardation
c. there is a risk premium paid by long hedgers
d. the market is at full carry
e. none of the above

Q3: Futures prices differ from spot prices by which one of the following factors?
a. the systematic risk
b. the risk premium
c. the spread
d. the cost of carry
e. none of the above

Q4: A convenience yield is
a. a return earned for delivering a good on time
b. the cost of carry minus the risk- free rate
c. a return earned for holding a good in short supply
d. the yield on an asset that is easy to acquire
e. none of the above

Q5: A short hedge is one in which
a. the margin requirement is waived
b. the hedger is short futures
c. the hedger is short in the spot market
d. the futures price is lower than the spot price
e. none of the above

Q6: What happens to the basis through the contracts life?
a. it initially decreases, then increases
b. it initially increases, then decreases
c. it remains relatively steady
d. it moves towards zero
e. none of the above

Q7: Suppose you buy an asset at 50 and sell a futures contract at $53. What is
your profit at expiration if the asset price goes to $49? (Ignore carrying costs)
a. -1
b. -4
c. 3
d. 4
e. none of the above