Test Bank: Chapter 2
Mechanics of Futures and Forward Markets
1. Which of the following is true (circle one)
a) Both forward and futures contracts are traded on exchanges. b) Forward contracts are traded on exchanges, but futures contracts are not. c) Futures contracts are traded on exchanges, but forward contracts are not. d) Neither futures contracts nor forward contracts are traded on exchanges.
2. Which of the following is not true (circle one)
a) Futures contracts nearly always last longer than forward contracts b) Futures contracts are standardized; forward contracts are not. c) Delivery or final cash settlement usually takes place with forward contracts; the same is not true of futures contracts. d) Forward contract usually have one specified delivery date; futures contract often have a range of delivery dates.
3. In the corn futures contract a number of different types of corn can be delivered (with price adjustments specified by the exchange) and there are a number of different delivery locations. Which of the following is true (circle one) a) This flexibility tends increase the futures price. b) This flexibility tends decrease the futures price. c) This flexibility may increase and may decrease the futures price. d) This has no effect on the futures price
4. A company enters into a short futures contract to sell 50,000 units of a commodity for 70 cents per unit. The initial margin is $4,000 and the maintenance margin is $3,000. What is the futures price per unit above which there will be a margin call? _ _ _ _ _ _
5. A company enters into a long futures contract to buy 1,000 barrels of oil for $60 per barrel. The initial margin is $6,000 and the maintenance margin is $4,000. What oil futures price will allow $2,000 to be withdrawn from the margin account? [pic]
6. On the floor of a...
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