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MultipleChoiceQuestions1.AfuturescontractA)isanagreementtobuyorsellaspecifiedamountofanassetatthespotpriceontheexpirationdateofthecontract.B)isanagreementtobuyorsellaspecifiedamountofanassetatapredeterminedpriceontheexpirationdateofthecontract.C)givesthebuyertheright,butnottheobligation,tobuyanassetsometimeinthefuture.D)isacontracttobesignedinthefuturebythebuyerandthesellerofthecommodity.E)noneoftheabove.Answer:BDifficulty:EasyRationale:Afuturescontractlocksinthepriceofacommoditytobedeliveredatsomefuturedate.Boththebuyerandsellerofthecontractarecommitted.2.Thetermsoffuturescontracts__________standardized,andthetermsofforwardcontracts__________standardized.A)are;areB)arenot;areC)are;arenotD)arenot;arenotE)are;mayormaynotbeAnswer:CDifficulty:EasyRationale:Futurescontractsarestandardizedandaretradedonorganizedexchanges;forwardcontractsarenottradedonorganizedexchanges,theparticipantnegotiatesforthedeliveryofanyquantityofgoods,andbanksandbrokersnegotiatecontractsasneeded.3.Futurescontracts__________tradedonanorganizedexchange,andforwardcontracts__________tradedonanorganizedexchange.A)arenot;areB)are;areC)arenot;arenotD)are;arenotE)are;mayormaynotbeAnswer:DDifficulty:EasyRationale:Seerationalefortestbankquestion22.2.4.InafuturescontractthefuturespriceisA)determinedbythebuyerandthesellerwhenthedeliveryofthecommoditytakesplace.B)determinedbythefuturesexchange.C)determinedbythebuyerandthesellerwhentheyinitiatethecontract.D)determinedindependentlybytheprovideroftheunderlyingasset.E)noneoftheabove.Answer:CDifficulty:ModerateRationale:Thefuturesexchangesspecifyallthetermsofthecontractsexceptprice;asaresult,thetradersbargainoverthefuturesprice.5.Thebuyerofafuturescontractissaidtohavea__________positionandthesellerofafuturescontractissaidtohavea__________positioninfutures.A)long;shortB)long;longC)short;shortD)short;longE)margined;longAnswer:ADifficulty:ModerateRationale:Thetradertakingthelongpositioncommitstopurchasethecommodityonthedeliverydate.Thetradertakingtheshortpositioncommitstodeliveringthecommodityatcontractmaturity.Thetraderinthelongpositionissaidtobuythecontract;thetraderintheshortpositionissaidtosellthecontract.However,nomoneychangeshandsatthistime.6.Investorswhotakelongpositionsinfuturesagreeto__________ofthecommodityonthedeliverydate,andthosewhotaketheshortpositionsagreeto__________ofthecommodity.A)makedelivery;takedeliveryB)takedelivery;makedeliveryC)takedelivery;takedeliveryD)makedelivery;takedeliveryE)negotiatetheprice;paythepriceAnswer:BDifficulty:ModerateRationale:Seeexplanationfortestbankquestion22.5.7.ThetermsoffuturescontractssuchasthequalityandquantityofthecommodityandthedeliverydateareA)specifiedbythebuyersandsellers.B)specifiedonlybythebuyers.C)specifiedbythefuturesexchanges.D)specifiedbybrokersanddealers.E)noneoftheabove.Answer:CDifficulty:ModerateRationale:Seerationalefortestbankquestion22.4.8.Atraderwhohasa__________positioninwheatfuturesbelievesthepriceofwheatwill__________inthefuture.A)long;increaseB)long;decreaseC)short;increaseD)long;staythesameE)short;staythesameAnswer:ADifficulty:ModerateRationale:Thetraderholdingthelongposition(thepersonwhowillpurchasethegoods)willprofitfromapriceincrease.Profittolongposition=Spotpriceatmaturity--Originalfuturesprice.9.Atraderwhohasa__________positioningoldfutureswantsthepriceofgoldto__________inthefuture.A)long;decreaseB)short;decreaseC)short;staythesameD)short;increaseE)long;staythesameAnswer:BDifficulty:ModerateRationale:Profittoshortposition=Originalfuturesprice--Spotpriceatmaturity.Thus,thepersonintheshortpositionprofitsifthepriceofthecommoditydeclinesinthefuture.10.TheopeninterestonsilverfuturesataparticulartimeistheA)numberofsilverfuturescontractstradedduringtheday.B)numberofoutstandingsilverfuturescontractsfordeliverywithinthenextmonth.C)numberofsilverfuturescontractstradedthepreviousday.D)numberofallsilverfuturesoutstandingcontracts.E)noneoftheabove.Answer:DDifficulty:ModerateRationale:Openinterestisthenumberofcontractsoutstanding.Whencontractsbegintrading,openinterestiszero;astimepassesmorecontractsareentered.Mostcontractsareliquidatedbeforethematuritydate.11.Whichoneofthefollowingstatementsregardingdeliveryistrue?A)Mostfuturescontractsresultinactualdelivery.B)Onlyonetothreepercentoffuturescontractsresultinactualdelivery.C)Onlyfifteenpercentoffuturescontractsresultinactualdelivery.D)Approximatelyfiftypercentoffuturescontractsresultinactualdelivery.E)Futurescontractsneverresultinactualdelivery.Answer:BDifficulty:ModerateRationale:Virtuallyalltradersenterreversingtradestocanceltheiroriginalpositions,therebyrealizingprofitsorlossesonthecontract.12.YouholdonelongcornfuturescontractthatexpiresinApril.TocloseyourpositionincornfuturesbeforethedeliverydateyoumustA)buyoneMaycornfuturescontract.B)buytwoAprilcornfuturescontract.C)selloneAprilcornfuturescontract.D)selloneMaycornfuturescontract.E)noneoftheabove.Answer:CDifficulty:ModerateRationale:Thelongpositionisconsideredthebuyer;tocloseoutthepositiononemusttakeareversingposition,orsellthecontract.13.Wh