Question 1

Assume that the S&P 200 is at 3850.The continuous dividend yield is 5.5% per annum and the risk free rate is 6.5% per annum.An SPI contract with 45 days to expiry would be priced at?

Accepted Answer

A)    $3897.67 \$ 3897.67 $3897.67 
B)    $3852.87 \$ 3852.87 $3852.87 
C)    $3857.24 \$ 3857.24 $3857.24 
D)    $3854.75 \$ 3854.75 $3854.75  E) A) and D)
F) B) and C)

Question 2

The S&P/ASX200 spot contract is at 4310,and has a dividend yield of 8% p.a.The risk-free rate is 5% and the SPI futures price is currently trading at 4710.Given this information,calculate the amount by which the futures contract is mispriced according to the cost-of-carry model.

Accepted Answer

A)    −15.01 -15.01 −15.01 
B)    98.25 98.25 98.25 
C)    144.99 144.99 144.99 
D)    368.00 368.00 368.00  E) C) and D)
F) None of the above

Question 3

Which of the following is true of parties to a forward contract?

Accepted Answer

A)   buyers take a short position, sellers take a long position
B)   buyers take a long position, sellers take a long position
C)   buyers take a short position, sellers take a short position
D)   buyers take a long position, sellers take a short positionE) B) and D)
F) A) and D)

Question 4

The Sydney Futures Exchange (SFE) changed its name to the ASX Futures Exchange in which year?

Accepted Answer

A)   1972
B)   1979
C)   2001
D)   2007 E) A) and C)
F) A) and B)

Question 5

Studies of the performance of cost-of-carry models have concluded that:

Accepted Answer

A)   the volatility of mispricing has decreased over time
B)   the volatility of mispricing has increased over time
C)   the average level of mispricing has decreased over time
D)   the average level of mispricing has increased over timeE) A) and B)
F) C) and D)

Question 6

Suppose S&P 200 is at 6020.Assume the continuous dividend yield is 4.5% p.a.and the risk-free rate of returns is 3% p.a.If a SPI futures contract has 62 days left to expiry,what should its price be?

Accepted Answer

A)   3019
B)   3048
C)   5795
D)   6005E) A) and B)
F) None of the above

Question 7

The use of standardised derivative contracts ensures a homogenous product but this does not help promote trading activity.

Accepted Answer

A) True 
 B)False

Question 8

Hodgson and Nicholls (1991) find that in Australia there has been __________ volatility in the stock market since the introduction of the SPI futures contract.

Accepted Answer

A)   more
B)   less
C)   no change inD) All of the above
E) B) and C)

Question 9

A futures contract __________.

Accepted Answer

A)  is a contract to be signed in the future by the buyer and the seller of a commodity
B)  is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract
C)  is an agreement to buy or sell a specified amount of an asset at whatever the spot price happens to be on the expiration date of the contract
D)  gives the buyer the right,but not the obligation,to buy an asset some time in the futureE) None of the above
F) All of the above

Question 10

Futures contracts have many advantages over forward contracts except that _________.

Accepted Answer

A)  futures positions are easier to trade
B)  futures contracts are tailored to the specific needs of the investor
C)  futures trading preserves the anonymity of the participants
D)  counterparty credit risk is not a concern on futuresE) B) and C)
F) None of the above

Question 11

Cox,Ingersoll & Ross (1981) ,research has found that ???_______________ ,being a key feature of futures contracts has no impact on pricing where interest rates are _____________ and it can explain differences between futures and forward prices where interest rates and underlying asset price are correlated.

Accepted Answer

A)   marking-to- market, non-stochastic
B)   contango, rising
C)   backwardation, stagnant
D)   backwardation, economically importantE) A) and D)
F) A) and C)

Question 12

Short futures contract requires no cash to change hands when initiated?

Accepted Answer

A) True 
 B)False

Question 13

If the SPI futures contract is quoted as 3750,the value of one SPI contract is:

Accepted Answer

A)    $3750 \$ 3750 $3750 
B)    $93750 \$ 93750 $93750 
C)    $125000 \$ 125000 $125000 
D)    $375000 \$ 375000 $375000  E) A) and D)
F) None of the above

Question 14

The S&P/ASX200 spot contract is at 4055 and has a dividend yield of 8% p.a.The risk-free rate is 7% and the SPI futures price is currently trading at 4058.Which of the following statements is part of an arbitrage strategy to profit from this information?

Accepted Answer

A)   Buy the spot and sell the futures contract
B)   Borrow the spot and borrow at the risk-free rate
C)   Borrow the spot and sell the future contract
D)   Repay the dividends and invest at the risk-free rateE) None of the above
F) B) and C)

Question 15

An investor who goes short in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset.

Accepted Answer

A)  pay;pay
B)  pay;receive
C)  receive;pay
D)  receive;receiveE) None of the above
F) A) and B)

Question 16

For an SPI futures contract where the risk-free rate is 5% p.a.and the underlying spot dividend yield is 2%,the futures price will be above that of the spot before maturity.

Accepted Answer

A) True 
 B)False

Question 17

An investor in the currency forward market who expects the Australian dollar to appreciate will gain from taking a short position.

Accepted Answer

A) True 
 B)False

Question 18

Contracts for difference (CFD's) are a/an ____________ between a buyer and seller to exchange the difference in the price of an underlying asset that occurs from when the contract is ________ through to when it is closed.

Accepted Answer

A)   entitlement, signed
B)   obligation, finalised
C)   agreement, opened
D)   margin, exchangedE) B) and C)
F) A) and C)

Question 19

If there is no risk premium in the futures market then:

Accepted Answer

A)   the futures price equals the spot price
B)   the futures price at maturity will equal the expected spot at expiry
C)   the current futures price equals the expected spot at expiry
D)   all of these choicesE) A) and B)
F) All of the above

Question 20

Which of the following best represents the phenomenon of contango?

Accepted Answer

A)   the futures price is the same as the expected spot price
B)   the futures price is less than the spot price
C)   the futures price is greater than the expected spot price
D)   the futures price is greater than the spot priceE) A) and D)
F) C) and D)

Exam 15: Futures and Forward Contracts

The S&P/ASX200 spot contract is at 4310,and has a dividend yield of 8% p.a.The risk-free rate is 5% and the SPI futures price is currently trading at 4710.Given this information,calculate the amount by which the futures contract is mispriced according to the cost-of-carry model.

Correct AnswerverifiedShow Answer

If the SPI futures contract is quoted as 3750,the value of one SPI contract is:

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Which of the following is true of parties to a forward contract?

Correct AnswerverifiedShow Answer

An investor in the currency forward market who expects the Australian dollar to appreciate will gain from taking a short position.

Correct AnswerverifiedShow Answer

Hodgson and Nicholls (1991) find that in Australia there has been __________ volatility in the stock market since the introduction of the SPI futures contract.

Correct AnswerverifiedShow Answer

An investor who goes short in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset.

Correct AnswerverifiedShow Answer

A futures contract __________.

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For an SPI futures contract where the risk-free rate is 5% p.a.and the underlying spot dividend yield is 2%,the futures price will be above that of the spot before maturity.

Correct AnswerverifiedShow Answer

Contracts for difference (CFD's) are a/an ____________ between a buyer and seller to exchange the difference in the price of an underlying asset that occurs from when the contract is ________ through to when it is closed.

Correct AnswerverifiedShow Answer

Assume that the S&P 200 is at 3850.The continuous dividend yield is 5.5% per annum and the risk free rate is 6.5% per annum.An SPI contract with 45 days to expiry would be priced at?

Correct AnswerverifiedShow Answer

Futures contracts have many advantages over forward contracts except that _________.

Correct AnswerverifiedShow Answer

Suppose S&P 200 is at 6020.Assume the continuous dividend yield is 4.5% p.a.and the risk-free rate of returns is 3% p.a.If a SPI futures contract has 62 days left to expiry,what should its price be?

Correct AnswerverifiedShow Answer

If there is no risk premium in the futures market then:

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The Sydney Futures Exchange (SFE) changed its name to the ASX Futures Exchange in which year?

Correct AnswerverifiedShow Answer

Which of the following best represents the phenomenon of contango?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The use of standardised derivative contracts ensures a homogenous product but this does not help promote trading activity.

Correct AnswerverifiedShow Answer

Studies of the performance of cost-of-carry models have concluded that:

Correct AnswerverifiedShow Answer

Short futures contract requires no cash to change hands when initiated?

Correct AnswerverifiedShow Answer

The S&P/ASX200 spot contract is at 4055 and has a dividend yield of 8% p.a.The risk-free rate is 7% and the SPI futures price is currently trading at 4058.Which of the following statements is part of an arbitrage strategy to profit from this information?

Correct AnswerverifiedShow Answer

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An investor who goes short in a futures contract will _ any increase in value of the underlying asset and will _ any decrease in value in the underlying asset.

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Contracts for difference (CFD's) are a/an ____ between a buyer and seller to exchange the difference in the price of an underlying asset that occurs from when the contract is through to when it is closed.

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