1a. Which of the following contract terms is not set by the futures exchange? a.

Question

1a.       Which of the following contract terms is not set by the futures exchange?

a. the dates on which delivery can occur b. the expiration months    c. the price    d.   the deliverable commodities    e.   the size of the contract

1b.       If the initial margin is $5,000, the maintenance margin is $3,500 and your balance is $4,000, how much must you deposit?

a.    nothing       b.     $6,000     c.   $1,500   d.   $9,000   e.    none of the above

1c.       If an investor exercises a cash settled derivative,

a.    the transaction entails only a bookkeeping entry     b.    must purchase the underlying instrument from the writer    c. immediately buy a put option to offset the call option     d. immediately write another call option to offset        e.   none of the above

1d.       What amount must a call writer pay if a cash-settled index call is exercised?

a.      difference between the index level and the exercise price     b. exercise price   c. difference between the exercise price and the index level     d. index level      e.   none of the above

1e.       Suppose you hold a call option. The stock price has recently been increasing-making your call option more valuable. Through what process might you take advantage of the liquid nature of the options market?

a.      offsetting order    b. contract reconciliation    c. mark to market order    d. settling up  

e. none of the above

1f.           Which of the following duties is not performed by the clearinghouse?

a.      holding margin deposits    b. guaranteeing performance of buyer and writer     c. maintaining records of transactions    d. lending money to meet margin requirements    e. none of the above

1g.      Which of the following can explain a contango?   

a. the interest rate exceeds the dividend yield      b. the cost of carry is negative          c. futures prices exceed forward prices      d. the market is at less than full carry           

e.   none of the above

Explanation / Answer

Answer:1a c. the price

Answer:1b a.    nothing

Since the balance ($4,000) is still greater than maintenance margin ($3,500), there is no need totop up the margin/deposit account. An account holder will only required to top up the account /deposit when balance falls below required maintenance margin

Answer:1c a.    the transaction entails only a bookkeeping entry

Answer:1d c. difference between the exercise price and the index level

Answer:1f d. lending money to meet margin requirements

Answer:1g   a. the interest rate exceeds the dividend yield

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