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Quizzes International Financial Markets

1. A futures contract will have its price adjusted each day of the
contracts life- either up or down, depending on current market
conditions. This is essence of
a. Marketing to market
2. Mark entered into a forward contract to buy 100 shares of Way-
Low Corp. stock at a price of $5 per share in exactly 6 months.
Now, the six-month period has passed. Way-Low Corp. stock is
trading at $7 per share. What are the consequences for Mark?
a. He has gained $200. [(7-5) *100]
3. Which of the following statements about futures contract is wrong?
a. The basis in futures is similar to a basis points in
banks

4. The basis is defined as


a. Spot price minus futures price

5. The basis must equal zero at the delivery date for the futures
contract
6. To minimize default risk, futures exchange requires all contracts to
be
a. Mark to market
7. The financial institution that guarantees both sides of a future
trade is called the
a. Clearinghouse
8. The cash price of wheat today is 410 cents per bushel, and the
three-months futures price of the same is 421 cents per bushel.
The basis is (410 421) = -11
9. Which if the following statements about margin requirements is
wrong?
a. The maintenance margin is only required for sellers of
futures contracts
10. A future contract is
a. a marketable obligation to buy or sell a specified
quantity of a particular asset during a given period
for a given price

11. Futures contracts exhibit convergence which means that

a. The futures price and spot price of an asset must be


equal at maturity

12. Yesterday you entered into a futures contract to buy 62,500


at $1.20 per . Suppose price closes today at $1.18. How much
have you made / lost?
a. Lost $1,250
13. A portfolio manager has a German bond portfolio that
matures in 6 months. What action can the manager take to reduce
foreign exchange rate risk?
a. Sell euro futures
14. For each pair shown below, which of the two describes a
forward contract? Which describes a futures contract?

a. For hedgers and for speculators


15. On November 15, you sold ten futures contracts for 100,000
CAD each at a rate of USD/CAD of 0.75. The subsequent
settlement prices are shown in the table below.
November 16 17 18 19 20 23 24
25

Futures rate 0.73 0.72 0.73 0.76 0.77 0.78 0.79


0.81

a. What are the daily cash flows from marking to


market?

November 16 17 18 19 20 23 24
25
Futures rate -.02 -.03 -.02 0.01 0.02 0.03 0.04
0.06

b. What is the total cash flow from marking to market


(ignoring discounting)?

.09*1m $90,000

c. If you deposit USD 75,000 into your margin account,


and your broker requires USD 50,000 as maintenance
margin, when will you receive a margin call and how
much will you have to deposit?

November 16 17 18 19 20
23

Futures 55,000 25,000 55,000 65,000 85,000


125,000
75,000

He will receive a call on November 17 for a deposit of variation


margin of 50,000