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CA Final Futures Contract — practice questions — page 2

Explore 69 free Futures Contract questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Futures Contract questions and exercises with answers

Showing questions 31–60 of 69.

A futures price below the expected future spot price describes which market condition?Read the answer and worked solution →As a forward or futures contract approaches maturity, its price tends to:Read the answer and worked solution →Keynes and Hicks argued that natural hedgers of a commodity, who wish to sell it later, collectively hold a net:Read the answer and worked solution →Compared with forwards, futures have significantly less credit risk mainly because of:Read the answer and worked solution →Which contract has no interim margin calls, so its entire unrealised gain or loss builds up until settlement?Read the answer and worked solution →A key advantage of a forward over a futures contract is that a forward:Read the answer and worked solution →Closing out a forward position generally requires dealing with:Read the answer and worked solution →A trader holds 200 long futures units and the futures price falls from 100 to 97. The daily marking to market is:Read the answer and worked solution →Return on margin in futures is calculated as realised return divided by:Read the answer and worked solution →A trader gains 1,500 on an initial margin of 10,000. The return on margin is:Read the answer and worked solution →A trader earns 10% on margin in two months. The annualized return on margin, (1.10)^6 - 1, is about:Read the answer and worked solution →The low margin required for futures leads to substantial:Read the answer and worked solution →Futures contracts on grain started trading on the Chicago Board of Trade in which year?Read the answer and worked solution →The original economic use of futures contracts was to:Read the answer and worked solution →Market participants who use futures to offset risk of price changes in an asset they hold or need are called:Read the answer and worked solution →Traders who seek profit by predicting market moves and taking a position without needing the underlying are:Read the answer and worked solution →A farmer sells futures on a crop before harvest mainly to:Read the answer and worked solution →The social utility of futures markets lies mainly in:Read the answer and worked solution →A hedge is best defined as a position intended to:Read the answer and worked solution →An exporter opens a factory in its customer's country to match revenues and costs in that currency. This is a:Read the answer and worked solution →Buying insurance against accidental property damage is an example of:Read the answer and worked solution →Which strategy closes every open position at once, e.g. by buying spot on signing a customer?Read the answer and worked solution →A hedging approach that pre-purchases in steps so the open position shrinks as maturity nears is:Read the answer and worked solution →Hedging the risk of an option against price changes in its underlying is called:Read the answer and worked solution →Delta, used in delta hedging, is the first derivative of the option's value with respect to the:Read the answer and worked solution →A put on a futures contract gives the holder the right to:Read the answer and worked solution →When the deliverable asset is in plentiful supply, futures prices are mainly determined by:Read the answer and worked solution →A crop that does not yet exist has its futures price set by:Read the answer and worked solution →In practice, futures prices vary within arbitrage boundaries around the theoretical price because of:Read the answer and worked solution →Cornering the market can break the link between:Read the answer and worked solution →

Worked practice questions

A futures price below the expected future spot price describes which market condition?

  1. Plain contango
  2. Yield inversion
  3. Normal backwardation
  4. Pure spot parity
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Correct answer: C. Normal backwardation

When the forward price is below the expected spot, hedgers sell at a discount and speculators earn a premium: normal backwardation.

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As a forward or futures contract approaches maturity, its price tends to:

  1. Converge with spot
  2. Double the spot
  3. Fall towards zero
  4. Diverge from spot
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Correct answer: A. Converge with spot

At maturity the time to delivery is zero, so the forward or futures price equals the spot price.

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Keynes and Hicks argued that natural hedgers of a commodity, who wish to sell it later, collectively hold a net:

  1. Long position
  2. Short position
  3. Zero position
  4. Option position
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Correct answer: B. Short position

Producers sell forward, so hedgers hold a net short position and speculators hold the net long.

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