Futures prices are discovered by: - answer-when contracts are bought and sold
The premise that makes hedging possible is cash and futures prices: - answer-generally change in the same direction by similar amounts
Open interest refers to: - answer-total number of futures that have not been off...
, Financial Risk Management Final
Exam
Futures prices are discovered by: - answer-when contracts are bought and sold
The premise that makes hedging possible is cash and futures prices: - answer-
generally change in the same direction by similar amounts
Open interest refers to: - answer-total number of futures that have not been offset
or fulfilled by delivery
To hedge against an increase in prices, you would: - answer-purchase futures
contracts
The primary function of the exchanges is to: - answer-ensure the financial integrity
of the contracts traded, and clear every trade made at the CME Group
The CFTC's main responsibilities are to: - answer-protect the trading public from
fraud and trading abuses on the exchange, protect the trading public from fraud
and trading abuses off the exchange, prevent price distortions and manipulations,
encourage overall competitiveness and efficiency on all U.S exchanges
Gains and losses on futures positions are settled: - answer-each day after the close
of trading
Hedging involves: - answer-taking a futures position opposite to one's current cash
market position
Futures contacts are: - answer-standardized agreement to buy or sell a specific
quantity and quality of an underlying asset at a certain price on a specified future
date
What do speculators do: - answer-assume market price risk while looking for profit
opportunities, anticipate profiting from trading, believe that commodities can help
diversify portfolios, provide liquidity
The price of a stock is $64. A trader buys one put option contract on the stock with
a strike price of $60 when the option price is $10. When does the trader make a
profit? - answer-When the stock price is below $50. The payoff must be more than
the $10 paid for the option. The stock price must, therefore, be below $50.
The price of a stock is $67. A trader sells five put option contracts (each contract is
100 options) on the stock with a strike price of $70 when the option price is $4. The
options are exercised when the stock price is $69. What is the trader's net profit or
loss? - answer-Gain of $1500, The option payoff is 70 − 69 = $1. The amount
received for the option is $4. The gain is $3 per option. In total 5 × 100 = 500
options are sold. The total gain is therefore $3 × 500 = $1,500.
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