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Series 3d questions and answers already passed 2024
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Series 3d questions and answers already passed 2024
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Series 3. Part 2 & 2 Quiz.A manufacturing company needs to hedge the later purchase of 350,000
pounds of copper. What is the appropriate position in copper futures (25,000
pounds per contract) to hedge the company's cash position?
A) Short 12 contracts
B) Short 20 contracts
C) Long 10 contracts
D) Long 14 contracts - correct answer ✔D) Long 14 contracts.
The wire manufacturer will buy cash copper as an input to its business. To
hedge the risk that copper prices may rise, the manufacturer buys copper
futures. To determine the position size, divide the purchase (in this case
350,000 pounds of copper) by the contract size (25,000 pounds) equals the
number of contracts (14).
Because futures options trading is based on the same principles as futures
trading, margin requirements are calculated the same way.
True or False? - correct answer ✔False.
Margins for futures contracts and for options on futures are determined in
different ways. For example, the option buyer must pay the premium in full; in
futures, the full value is never paid to initiate the position.
If new initial and maintenance margins are established, which of the following
statements is NOT true?
,A) Excess equity can be applied to new requirements.
B) Equity in excess of initial margin can be applied to new positions.
C) Equity in excess of the initial margin can be applied to the initial margin
required.
D) Equity between initial and maintenance margins can be applied to new
positions. - correct answer ✔D. Equity between initial and maintenance
margins can be applied to new positions.
Only equity in excess of initial margins (not maintenance margins) can be
applied to new positions.
A lumber exporter can hedge all of the following risks on U.S. futures
exchanges EXCEPT
A) any of these
B) a shortage of ships
C). a runaway futures market
D). the value of the dollar relative to certain other currencies - correct answer
✔B) a shortage of ships
No futures contracts currently trade in U.S. markets for space on
transportation vessels. U.S. futures markets do trade foreign currencies and
lumber.
,The Swiss have raised their interest rates, and arms sales have increased
while British North Sea oil output is below forecast. How would a speculator
react?
A) Sell British pound calls and buy pound puts
B) Sell British pound futures, buy Swiss franc futures
C) Buy Swiss franc calls and sell Swiss franc puts
D) Buy British pound futures, sell Swiss franc futures - correct answer ✔B)
Sell British pound futures, buy Swiss franc futures
A basic speculative strategy is to go short on bad news and to go long on
good news.
An Iowa feedlot operator has sold forward fat cattle 20,000 cwt at 84.70 cents
per lb. on May 5. At the same time he hedges in feeder cattle. The cash price
is 85.04 cents per lb while the Nov futures is 86.72. On September 30, he
closes his position by buying the feeder cattle at 87.81 and offsetting his
futures contracts at 88.48. What was his effective purchase price?
A)87.73
B) 87.47
C) 86.05
D) 87.81 - correct answer ✔C) 86.05
, There is a change in basis of + 1.01Effective purchase price is $85.04 plus
loss of $1.01 = 86.05. Having bought the futures, the hedger is short the
basis; unfortunately, the basis increased.The effective purchase price is the
final cash price (87.81) minus gains on the futures position (88.48 − 86.72 =
1.76).[87.81 − 1.76 = 86.05]
When a futures contract is offset, delivery occurs immediately.
True or False. - correct answer ✔False.
Once an investor offsets a futures contract, she no longer has a commitment
to make or take delivery. Few investors seek to make or take delivery (98
percent to 99 percent of all contracts are offset).
Your customer is short 2 Feb lean hogs futures (40,000 lbs) and long 2 May
lean hogs. At initial placing of the positions, the basis is -100 while on
offsetting both contracts the basis is -400. Which of the following is TRUE?
A) Gain of 500 points
B) Gain of 600 points
C) Loss of 500 points
D) Loss of 600 points - correct answer ✔B) Gain of 600 points
The position is a spread, and the gain is in movements of the comparative
prices. The customer is short the near, long the far. If the difference (basis)
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