Series 3 final exam 2

Question 1 of 125

1

A customer places an order to buy 3 Aug. pork belly contracts at $.9000 per lb.
and to sell 3 July pork belly contracts at $.9550 per lb. (40,000 lbs. per contract).
The spread narrows, and your customer closes his position with the May pork
bellies at $.9285 and the July contracts at $.9695. His gross gain on the trade is:

Select one of the following:

A. $1,740
B. $3,420
C. $560
D. $1,680

Explanation

Question 2 of 125

1

A CPO need not disclose for a pool for which he has participants but 'has not
commenced trading:

Select one of the following:

True
False

Explanation

Question 3 of 125

1

Assignment of futures options includes the notification of the seller of a put or call
that the buyer has exercised the option:

Select one of the following:

True
False

Explanation

Question 4 of 125

1

Cash settlement occurs in which of the following contracts:

Select one of the following:

A. Euro FX futures
B. Live Cattle futures
C. Feeder Cattle futures
D. T-Note futures

Explanation

Question 5 of 125

1

Upon filling an order, the FCM reports to his IB that the IB's order has been
filled. The IB need not time stamp the order because the FCM is required to time
stamp it upon calling the IB:

Select one of the following:

True
False

Explanation

Question 6 of 125

1

As an option approaches expiration, its time value decreases at an accelerating
rate:

Select one of the following:

True
False

Explanation

Question 7 of 125

1

An oil refinery has entered into a forward contract to buy crude oil at a fixed
price in 2 months for refining. To hedge against the possibility of declining prices
for petroleum products, the refinery may:

Select one of the following:

A. Buy crude oil futures
B. Sell heating oil futures
C. Do nothing because its purchase price is locked in and it need not hedge
D. Buy unleaded gas futures

Explanation

Question 8 of 125

1

A pool maintains 50% of its margin requirements in T-Bills. This fact must be
disclosed in its Disclosure Document:

Select one of the following:

True
False

Explanation

Question 9 of 125

1

An FCM and a CPO have an agreement whereby the FCM is required to remit a
fee to the CPO for trading business. This does not affect the operation of the
pool and therefore need not be disclosed:

Select one of the following:

True
False

Explanation

Question 10 of 125

1

Security Futures Products are:

Select one of the following:

A. Narrow-based index futures
B. Single-stock futures
C. Hybrid securities/futures instruments
D. All of the above

Explanation

Question 11 of 125

1

An NFA member who is in violation of an NFA rule or regulation may be subject
to one of two possible procedures. The first involves the preparation of a report,
investigation, and prosecution by the Compliance Director, while the second
procedure involves a summary suspension from membership when the NFA
Board of Directors believes that the member's actions could cause damage to the
futures industry. Under both procedures, the member firm has a trading restriction
until the matter is resolved:

Select one of the following:

True
False

Explanation

Question 12 of 125

1

According to NFA Rule 2-30 (the "Know your Customer" rule), an AP who
solicits accounts must decide what additional risk disclosure information might be
appropriate for his new customer:

Select one of the following:

True
False

Explanation

Question 13 of 125

1

A Futures Commission Merchant, in its discretion, may liquidate any customer's
open positions if the customer fails to meet a margin call on time:

Select one of the following:

True
False

Explanation

Question 14 of 125

1

The Customer's Commodity Agreement usually contains which of the following:

Select one of the following:

A. A provision authorizing the transfer of a customer's funds from his stock
account to his futures account
B. A provision authorizing the broker to place trades in the account without
contacting the customer in advance
C. A provision requiring the broker to liquidate open positions should the
customer fail to meet a margin call in a timely fashion
D. A provision authorizing the transfer of funds from his futures account to
his stock account

Explanation

Question 15 of 125

1

Using basis trading principles, your customer would have a strengthening of the
basis when the cash price remains unchanged and the futures price falls:

Select one of the following:

True
False

Explanation

Question 16 of 125

1

October gold futures are trading at $404.80/troy oz. Your customer buys one
October 405 call at $9.60, sells two October 415 calls at a total of $12.00, and
/ buys one October 425 call at $3.20. Your customer has

Select one of the following:

A. Purchased a strangle spread
B. Purchased a combination straddle
C. Purchased a butterfly call spread
D. Purchased a vertical bull call spread

Explanation

Question 17 of 125

1

A Member, unless under investigation or disciplinary charges by the NF A, may
resign at any time by filing written notice with the Secretary:

Select one of the following:

True
False

Explanation

Question 18 of 125

1

Daily price limits for single-stock futures:

Select one of the following:

A. Are not set, but trading stops when the CFTC and SEC halt their trading
B. Are not set, but trading stops when the underlying stock stops trading
C. Vary from contract to contract based on Circuit breaker requirements
D. Are based on the same Circuit breaker limits as the underlying stock

Explanation

Question 19 of 125

1

NFA Compliance Rule 2-4 says, "Members and Associates shall observe high
standards of commercial honor and just and equitable principles of trade in the
conduct of their commodity futures business.":

Select one of the following:

True
False

Explanation

Question 20 of 125

1

Researching inflation rates around the world, you have found the following
countries'rates:
U.S. 4%
Japan 6%
Switzerland 3%
European Union 5%
Great Britain 4%

One of your clients is interested in trading currency futures options. You might
suggest that your client:

Select one of the following:

A. Buy Euro FX calls
B. Write British Pound puts
C. Write Japanese Yen puts
D. Buy Swiss Franc puts

Explanation

Question 21 of 125

1

When an m is guaranteed, that means that the m has an FCM who will provide
$30,000 net capitalization if the m needs the money to satisfy NFA capitalization
requirements, while an independant IB has its own $30,000 net capitalization.

Select one of the following:

True
False

Explanation

Question 22 of 125

1

The Commodity Exchange Act requires bonafide hedging customers to meet
minimum capitalization requirements:

Select one of the following:

True
False

Explanation

Question 23 of 125

1

NFA Rule 2-30, the "Know your customer rule," requires the Member or Associate
to obtain a customer's:

Select one of the following:

A. Current annual income and net worth
B. True name and address, and principal occupation or business
C. Customer's approximate age and previous investment and futures trading
experience.
D. All of the above

Explanation

Question 24 of 125

1

Chicago Board of Trade Rule 431.02 states that "changes in margin requirements
shall be effective on all transactions.":

Select one of the following:

True
False

Explanation

Question 25 of 125

1

An AP is required to reregister with the CFTC when he moves from one FCM to
another, even though his registration has not expired and all proper subsequent
filings have been made:

Select one of the following:

True
False

Explanation

Question 26 of 125

1

Your customer enters a long futures hedge. If the basis strengthens, he will not
only be fully protected against a price rise, but he will also earn a profit from the
change in basis:

Select one of the following:

True
False

Explanation

Question 27 of 125

1

Before a customer opens a discretionary futures account, the CFTC requires that
the RCR obtain all of the following, except:

Select one of the following:

A. Signed Risk Disclosure Statement
B. Signed Commodity Customer Agreement
C. Signed Customer Loan Agreement
D. Signed Customer Loan Agreement

Explanation

Question 28 of 125

1

Any up front fees and expenses charged by a CPO or CTA to his customer must
be disclosed in the Risk Disclosure Statement:

Select one of the following:

True
False

Explanation

Question 29 of 125

1

Prices for com futures are as follows:
March $2.49
July $2.45
Dec $2.4425
May $2.5750
Sept $2.50

Based on these prices, you would conclude that the market has:

Select one of the following:

A, Ample current supplies
B. Strong demand for deferred futures supplies , -
C. Short cash market supplies
D. None of the above

Explanation

Question 30 of 125

1

The Options Risk Disclosure Statement requires that an FCM provide a trader
which of the following before he enters an option trade:

Select one of the following:

A. The procedure for exercising the option
B. A description of all costs if the commodity option is exercised
C. An explanation of an option grantor's initial margin requirement
D All of the above

Explanation

Question 31 of 125

1

A sell MIT order becomes a market order when the commodity sells (or is bid) at
or below the order price:

Select one of the following:

True
False

Explanation

Question 32 of 125

1

A customer "give-up" is a trade executed by one broker for the client of another
broker and then "given-up" to the regular broker:

Select one of the following:

True
False

Explanation

Question 33 of 125

1

An example of a Treasury bond bull call spread is:

Select one of the following:

A. Buy one 111 call, sell one 111 put
B. Buy one 111 call, sell one 109 call
C. Buy one 109 call, sell one 109 put
D. Buy one 109 call, sell one 111 call

Explanation

Question 34 of 125

1

The Customer's Commodity Agreement must be signed by the customer to
assure the FCM that:

Select one of the following:

A. The customer waives his right to file a lawsuit against the FCM
B. The customer will repay any funds that it borrows from the FCM
C. The customer is aware that his account may be closed out if margin
requirements are not met
D. All of the above

Explanation

Question 35 of 125

1

"Margin" for futures is better described as earnest money or a performance bond:

Select one of the following:

True
False

Explanation

Question 36 of 125

1

Exchange regulations do not require which of the following for proper handling of
discretionary accounts

Select one of the following:

A. Written confirmation of each trade
B. Notification of each new order before it is entered
C. Written power of attorney
D. Daily supervision by a partner or officer of the firm -

Explanation

Question 37 of 125

1

The cash settlement amount for S&P 500 futures contracts is based

Select one of the following:

A. The S&P 500 cash index at the close of business on settlement day
B. The S&P 500 futures price at the close of business on the day before
settlement day
C. The S&P 500 cash index at the close of business on the day before
settlement day
D. The S&P 500 futures price, which has converged to the special opening
quote of the cash index on the third Friday of the month

Explanation

Question 38 of 125

1

The CFTC regulates the trading of options on corn, crude oil futures, and broadbased
stock index futures; the SEC regulates the trading ofNYSE Composite
index futures options and single-stock futures:

Select one of the following:

True
False

Explanation

Question 39 of 125

1

Any FCM which enters into a guarantee agreement with an ill shall be jointly and
severally subject to discipline for any NFA Compliance Rule violations committed
by the ill:

Select one of the following:

True
False

Explanation

Question 40 of 125

1

A CPO who is acting as a CTA for his pool must register as a CTA:

Select one of the following:

True
False

Explanation

Question 41 of 125

1

A customer purchases 2 March T-Note 112 calls at 0-45/64 ($100,000 face
value). If the March futures price rises to 116-00/32 and the customer exercises,
his profit will be:

Select one of the following:

A.· $6,593.75
B. $3,296.88
C. $8,000.00
D. $4,000.00

Explanation

Question 42 of 125

1

Your customer is a cotton hedger. In May, he forecasts a crop yield of 200,000
lbs. The current cash price is 57.1O¢!ffi. He decides to hedge against a decline in
cotton prices using 4 October cotton futures contracts (50,000 lbs. each) at
53.75¢/lb. At harvest, he sells his cotton at 54.25¢/lb. in the cash market, and lifts
the hedge with October futures at 50.1 O¢/lb. What is his net price per pound?

Select one of the following:

A. 54.25¢
B. 60.75¢
C. 57.90¢
D. 57.10¢

Explanation

Question 43 of 125

1

In the storable commodities, a buy hedge would be used to lock in the sales price
of the cash commodity:

Select one of the following:

True
False

Explanation

Question 44 of 125

1

A small pension fund manager has a portfolio consisting primarily of blue chip
stocks currently valued at $1,000,000. Expecting a market decline, he hedges the
portfolio with the sale of25 DJIA futures at 10177 ($10 times the average). The
market does decline, and the value of the portfolio falls to $750,000. The stock is
sold and the 25 DJIA futures contracts are offset at 9227. The hedge:

Select one of the following:

A. Provided full protection against a loss of$250,000 on the portfolio and
earned nothing additional on the futures
B. Provided full protection against a loss of$250,000 on the portfolio and
earned an additional $12,500 on the futures
C. Produced a gain of$237,500 on the futures which covered all but $12,500
of the total $250,000 loss
D. Produced a gain of$237,500 on the futures covering all but $8,500 of the
total $250,000 loss on the portfolio

Explanation

Question 45 of 125

1

NFA Rule 2-27 (Transfer of Customer Accounts) does not prohibit the transfer
of a customer's account from one Member to another when the transfer is based
upon an oral request:

Select one of the following:

True
False

Explanation

Question 46 of 125

1

Your customer has been watching for a spread opportunity in unleaded gas
futures (42,000 gallons per contract). On January 10, the March futures contract
is $.0650 over the May futures. Your customer expects a decline in unleaded gas
demand. You enter his spread order to sell 10 March, buy 10 May when the
March is $.0650 over the May. By February 1, the spread has weakened. The
March is now $.0240 over the May. He lifts his spread with the following results:

Select one of the following:

A. Again of $I,722
B. A loss of$1,722
C. A loss of $17,220
D, Again of $17,220

Explanation

Question 47 of 125

1

Assume margin for soybean meal futures on the CBOT is $24.30 per ton and
commissions are $45 per round turn (100 tons per contract). Your customer goes
long 3 contracts at $ 195.50/ton, and liquidates his position at $199.20. What is his
percentage of profit on his margin deposit after commissions:

Select one of the following:

A. 15%
B. 46%
C. 13%
D. 40%

Explanation

Question 48 of 125

1

In the SPAN (Standard Portfolion Analysis of Risk) margin requirement system,
the exchange provides the SPAN information in downloadable files and the
brokerage firms:

Select one of the following:

A. Need do nothing more with the information
B. Forward the downloaded information directly to their customers
C. Use the "back-end" SPAN program and the downloaded information to
determine margin requirements for each customer's portfolio
D. Forward the "back-end" SPAN program and the downloaded information
directly to their customers

Explanation

Question 49 of 125

1

On January 15, a meatpacker hedges 200,000 lbs. of hogs, which he will need in
late March, using the April lean hog futures contract (40,000 lbs. per contract).
The April futures price is 63.65¢/lb. when the local cash market price is 65.25¢/
lb. On March 20, he buys live hogs in the local cash market for 68.1 O¢/lb. and
lifts his hedge at 66.95¢/lb. His net cost for the live hogs was:

Select one of the following:

A, 68.l0¢/lb.
B. 64.80¢/lb.
C. 65.25¢/lb.
D. 61.95¢/lb.

Explanation

Question 50 of 125

1

A pool operator does not have to disclose the potential size of a pool:

Select one of the following:

True
False

Explanation

Question 51 of 125

1

Risk Disclosure Statements must be received and signed only by those customers
who are opening discretionary accounts:

Select one of the following:

True
False

Explanation

Question 52 of 125

1

An RCR handling a non-discretionary account has a hot trade for his customer,
but the customer is out of town on business. The RCR may place the customer's
order, providing he will be able to notify the customer within 24 hours:

Select one of the following:

True
False

Explanation

Question 53 of 125

1

NFA Members and their associates are not allowed to conduct business with a
suspended Member during the suspension unless specifically authorized by the
Business Conduct Committee or the Appeals Committee:

Select one of the following:

True
False

Explanation

Question 54 of 125

1

An account executive urges a wealthy new customer to trade excessively so he
can generate a large commission income. This unethical act, done solely for his
own benefit, is called:

Select one of the following:

A. Laundering
B. Churning
C. Insider trading
D. Whipsawing

Explanation

Question 55 of 125

1

A CPO may not commingle trading funds for more than one pool, nor commingle
funds of a pool with those of the pool operator:

Select one of the following:

True
False

Explanation

Question 56 of 125

1

A speculator purchases two Swiss Franc futures contracts in June at $.7846
(each contract is 125,000 Francs). In August, he sells the two contracts at
$.7972. Ignoring the commission costs, what is his gross gain on the trade?

Select one of the following:

A. $3,550
B. $3,150
C. $3,015
D. $3,575

Explanation

Question 57 of 125

1

In August, after a rising trend in cocoa futures prices has been confirmed, your
customer enters a long position in 5 December contracts (10 metric tons per
contract) at $1,675 per metric ton. By September 24, the December cocoa
futures have risen to $1,762. Because your client's analysis of the market
indicates that cocoa prices have topped out, he decides to enter a stop order to
sell at $1,752 per metric ton GTC. On September 26, the stop order is touched
and filled at $1,751. After commissions of $30 per contract, his trade resulted in a
gain of:

Select one of the following:

A. $3,800
B. $3,950
C, $3,400
1) $3,650
D. $3,650

Explanation

Question 58 of 125

1

If a speculator takes a short position of 1 Canadian Dollar futures contract (each
contract is 100,000 Canadian Dollars), at $.7620, and later liquidates the position
when the Canadian Dollar is at $.7865, the gross loss is:

Select one of the following:

A $3,062.50
B. $2,450.00
C. $1,225.00
D. $612.50

Explanation

Question 59 of 125

1

NFA Compliance Rule 2-3 states that Members and Associates shall observe
high standards of commercial honor, andjust and equitable principles of trade in
the conduct of their commodity futures business:

Select one of the following:

True
False

Explanation

Question 60 of 125

1

A metals speculator takes a long position of 4 NYMEX platinum futures contracts
at $854.90/troy oz. (50 troy ounces per contract). Later, the market moves to
$847.80. He decides to sell, and his order is filled at $848.10. What is the
trader's profit or loss after commission costs of$45.00 per contract?

Select one of the following:

A. $295
B. $1,360
c.. $1,540
D $1,180

Explanation

Question 61 of 125

1

A steel exporter anticipates sales to Japan, and expects payment in Japanese
Yen, rather than U.S. dollars. He believes that the dollar will strengthen against
the yen; therefore, the exporter would hedge against his exchange rate loss by
buying yen futures:

Select one of the following:

True
False

Explanation

Question 62 of 125

1

You have a speculative customer who anticipates a decline in Treasury Bond
interest rates. Which of the following trades will produce the greatest gain:

Select one of the following:

A. Purchasing calls
B. Purchasing puts
C. A bull call vertical spread
D. Selling calls

Explanation

Question 63 of 125

1

Your customer went short 3 live cattle futures contracts at 83.65¢ per pound
(40,000 lbs. per contract). Later, he liquidated the position at 78.67 ¢ per pound.
After total commission costs of$85 .50, his realized profit is:

Select one of the following:

A. $6,061.50
B. $5,976.00
C. $1,906.50
D. $5,890.50

Explanation

Question 64 of 125

1

NFA membership may be terminated for failure to notify the NFA of an address
change:

Select one of the following:

True
False

Explanation

Question 65 of 125

1

The following order is prohibited on which exchange- "Buy March wheat at
315.50, Sell May wheat at 322.75 stop":

Select one of the following:

A. Chicago Board of Trade
B. Kansas City Board of Trade
C. Minneapolis Grain Exchange
D. None of the above

Explanation

Question 66 of 125

1

"Short covering" means:

Select one of the following:

A. Liquidating a long position
B. Closing out a hedge
C. Liquidating a short position
D. Evening up a purchase

Explanation

Question 67 of 125

1

Your customer is long Deutsche Mark-futures. A weakening of the U.S. Dollar
will produce a gain:

Select one of the following:

True
False

Explanation

Question 68 of 125

1

SFP promotional material must do all of the following, except:

Select one of the following:

A. Clearly show who is offering the promotion and how to acquire the SFP
Risk Disclosure Document
B. Cite the sources of any tables, charts, or statistical information included in
the promotion
C, State precautions or disclaimers in a manner designed to mislead or
confuse the customer or obscure the precautions or disclaimers
D. Be approved in writing by the Designated Security Futures Principal
(DSFP) prior to use

Explanation

Question 69 of 125

1

GSCI (Goldman Sachs Commodity Index) index futures are traded in index points
with a value of$250. If your customer sold 20 GSCI futures short at 312.50 and
closed the position at 299.20, what is the gross gain or loss on the trade?

Select one of the following:

A. Loss of $66,500.00
B. Gain of $3,325.00
C. Loss of $3,325.00
D. Gain of $66,500.00

Explanation

Question 70 of 125

1

An international company commonly uses interest-bearing Certificates of Deposit
to manage its cashflow. It keeps funds in CDs in anticipation of quarterly payments
oftaxes and dividends. To protect against a decline in the value of CDs
held in their portfolio, which ofthe following strategies would be most suitable:

Select one of the following:

A. Buy Eurodollar futures and sell cash CDs short
B. Sell Eurodollar futures and buy cash CDs
C. Buy Eurodollar futures
D: Sell Eurodollar futures

Explanation

Question 71 of 125

1

NFA has different rules for targeted SFP promotions from the rules for promotions
to the general public. Promotions to the general public can include the
following items, except

Select one of the following:

A. The Member firm's name
B. How to acquire the SFP Risk Disclosure Statement
C. A description of the SFP trading program being promoted
D. SFP recommendations

Explanation

Question 72 of 125

1

A speculative customer has taken a short position in 2 Eurodollar futures contracts
at 98.07. He closes the position at 97.40. Ignoring commission costs, what
is the result of his trade?

Select one of the following:

A gain of $1,675.00
A gain of $3,350.00
A gain of $2,093.75
A loss of $1,675.00

Explanation

Question 73 of 125

1

A trader exercises a 210 corn call when the underlying futures price is $2.35. He
acquires..

Select one of the following:

A long futures position at a price of $2.35
A short futures position at a price of $2.35
A long futures position at a price of $2.1 0
A short futures position at a price of $2.1 0

Explanation

Question 74 of 125

1

According to Rule 2-30, NFA Associates must verify information given to them
by a new customer:

Select one of the following:

True
False

Explanation

Question 75 of 125

1

Which of the following hedging strategies in options on Japanese Yen futures
would provide the best protection against a sharp decline in the Japanese Yen
exchange rate?

Select one of the following:

A. Short puts
B Long calls
C Long puts
D Put call straddle

Explanation

Question 76 of 125

1

The July 640 soybean put option premium is 28.50¢ per bushel, and the July
futures are trading at $6.3725 per bushel. The time value of the option is:

Select one of the following:

A. 2.75¢ per bushel
B. 25.75¢ per bushel
C. 28.50¢ per bushel
D. O¢per bushel

Explanation

Question 77 of 125

1

A corporate treasurer plans to sell $1,000,000 of commercial paper in six months.
The prime commercial paper rate is 3%. The 3-month Eurodollar rate is 2%, and
the Eurodollar futures rate for the appropriate contract is at 2%. He decides to
hedge against an increase in interest rates. His best strategy would be to:

Select one of the following:

A. Sell September Eurodollar futures and buy 3-month Eurodollars
B. Buy September Eurodollar futures
C Buy Eurodollar futures and sell Eurodollars in the cash market/
D. Sell September Eurodollar futures

Explanation

Question 78 of 125

1

NFA Compliance Rule 2-9, Part C requires FCMs and IDs to have anti-money
laundering programs. Interpretive Notice #9045 further clarifies their duties.
Compliance with Rule 2-9 requires all of the following, except:

Select one of the following:

A. Knowing the "true identity" of your customers
B. Recognizing and reporting "suspicious activity"
c. Keeping records in such a fashion as to produce an audit trail
D. Banning clients from certain "high risk" countries of origin

Explanation

Question 79 of 125

1

In December, your customer, a large taxpayer, anticipates a tax payment in April
of$965,000. At that time, he expects to have to liquidate some of his blue chip
stocks to make the payment. He believes that the market is somewhat overpriced.
and expects a decline between now and April. With the DJIA futures at
10065 now (each point equals $10), which of the following is the appropriate
hedging strategy:

Select one of the following:

A. Buy 10 DJIA futures
B. Sell 9 DJIA futures
C. Buy 9 DJIA futures"
D. Sell 10 DJIA futures"

Explanation

Question 80 of 125

1

The CFTC may either seek an injunction to restrain someone from breaking a
regulation, or a writ of mandamus to compel someone to comply with a regulation:

Select one of the following:

True
False

Explanation

Question 81 of 125

1

at 110 11132 ($100,000 face value each contract). On January 20, he closed the
position at 109 21132. Ignoring commission costs, what was the result of the
trade:

Select one of the following:

He lost $6,875 per contract
He gained $6,875 per contract
He gained $687.50 per contract
None of the above

Explanation

Question 82 of 125

1

Futures exchanges establish the minimum margin requirements for hedgers, but
speculative margins are established by the NF A:

Select one of the following:

True
False

Explanation

Question 83 of 125

1

According to NFA Compliance Rule 2-29, no Member shall use any promotional
material which says that futures trading is appropriate for everyone:

Select one of the following:

True
False

Explanation

Question 84 of 125

1

If the Compliance Director has reason to believe that an NFA regulation is about
to be violated, he may do which of the following, except:

Select one of the following:

Submit a written report about the violation to the Regional Committee
Summarily suspend the Member's membership in the NFA
Recommend a course of action for the Regional Committee
Require statements under oath from any Member, Associate, or other
person connected with the case ./

Explanation

Question 85 of 125

1

On November 1, a soybean farmer is offered $5.9750 per bushel for his soybeans in the local cash market and the November futures are priced at $6.1250 per
bushel (5,000 bushels per contract). He decides to fully hedge his beans, and his
order is filled at $6.1225 per bushel. On November 14, the farmer is ready to sell
his soybeans in the local market at $5.8250 per bushel. On the same date, the
November futures are trading in the $5.9250 to $5.9350 per bushel range. He
instructs his broker to lift his hedge; he receives confirmation that his order has
been filled at $5.93 per bushel. Ignoring transaction costs, but considering the
effects of both cash and futures price movements, what is the farmer's gross
income per bushel received for his beans:
85.

Select one of the following:

A: $5.8675
B. $5.9425
C. $5.8250
D. $6.0175

Explanation

Question 86 of 125

1

Studying the financial markets, a speculator believes there is likely to be an increase in the Fed Funds rate. On August 30, the December Fed Funds futures
price is 98.05. Contracts are for $5,000,000 face amount. Each .005, one-half
basis point, equals $20.835. The speculator takes a short position in 3 contracts at
98.05. On November 30, the speculator offsets the position with December Fed
Funds futures at 97.825. As a result, the speculator has:

Select one of the following:

A. Gained $937.58
B. Lost$937.58
C. Gained $2,812.73
D. Lost$2,812.73

Explanation

Question 87 of 125

1

In February, a contractor forecasts its 2nd quarter need for lumber at 1.19 million
board feet. Currently, lumber is trading at $430.10/1,000 bd. ft. in the cash
market and the CME May lumber futures are at $434.3011 ,000 bd. ft. The
contractor gives his broker the order to buy 10 contracts (each contract for
110,000 bd. ft.). The order is filled at $434.40. By mid April, lumber prices have
risen anticipating strong seasonal demand. Cash lumber is $436.2011,000 bd. ft.,
and the May futures is at $441.40/1,000 bd. ft. The contractor purchases the
lumber he needs and lifts the hedge at these prices. Given the change in cash and
futures prices, what is the cost of the lumber to the contractor?

Select one of the following:

A. $436.20/1,000bd. ft.
B. $443.20/1,000bd. ft. -e."
C, $431.00/1,000bd.ft.
D. $429.20/1,000bd. ft.

Explanation

Question 88 of 125

1

Your customer has been watching the stock market, and in October she feels that
it is bound for a major decline following months of feverish speculation which has
bid prices up to levels not supported by corporate earnings. The customer
decides to go short 3 March E-mini S&P 500 futures contracts, which are trading
around 1100. This index futures, representing 500 diversified stocks, has a
contract value of the index number times $50. Minimum speculative margin is
$4,000 per contract. Your customer's order is filled at 1102.05. By December,
the Dow has slipped substantially, but the market appears to be trying to rally.
Your customer places a stop loss order at 1020.00, and it is later activated and
filled at 1019:80. What is the result of her trade:

Select one of the following:

A. gain of$4, 112.50
B. A gain of$8,225.00
C. A gain of$12,337 .50
D. A loss of$4, 112.50

Explanation

Question 89 of 125

1

The overarching law governing anti-money laundering programs is the:

Select one of the following:

A. Anti-Money Laundering Act
B. Bank Secrecy Act
C. Money Laundering and Sedition Act
D. Anti-Bank Secrecy Act

Explanation

Question 90 of 125

1

Your customer regularly trades futures option spreads. His latest trade was a
short strangle in Euro FX options. Euro FX futures are trading at $1.2050.
Which of the trades below did he enter?

Select one of the following:

A.Sold March 12200 Euro FX calls and sold March 11800 Euro FX puts
B. Bought March 12200 Euro FX calls and sold March 11800 Euro FX puts /
C. Bought March 12200 Euro FX calls and bought the March 11800 Euro /
FXputs
D. Sold March 122 Euro FX calls and bought March 11800 Euro FX puts

Explanation

Question 91 of 125

1

Vertical option spreads include:

Select one of the following:

A. Call bull spreads
B. Put bear spreads
C. Bull put spreads
D. All of the above

Explanation

Question 92 of 125

1

When a call option is exercised, the writer receives:

Select one of the following:

A . A short futures position
B. A long futures position
C. A short cash position
D. A long cash position

Explanation

Question 93 of 125

1

Intrinsic value is:

Select one of the following:

A. The difference between the futures price and the option strike price for
an out-of-the-money option
B. The difference between the futures price and the option strike price for
an in-the-money option
C. The difference between the option strike price and the premium for an in the-
money option
D. The difference between the option strike price and the premium for an
out-of-the-money option

Explanation

Question 94 of 125

1

To profit from a bull spread, a futures trader would expect the spread to:

Select one of the following:

A. Widen
B. Narrow
C. Weaken
D. Strengthen

Explanation

Question 95 of 125

1

The purchaser of a December 9200 Japanese Yen put exercises his option when
the December Yen futures reach $.0090581¥. What book entries are made in the
accounts of the put purchaser and seller?

Select one of the following:

A. Purchaser receives a long futures position at $.009058; seller receives a
short futures position at $.009058
B. Purchaser receives a short futures position at $.009058; seller receives a
long futures position at $.009058
C Purchaser receives a short futures position at $.009200; seller receives a
long futures position at $.009200
D. Purchaser receives a long futures position at $.009200; seller receives a
short futures position at $.009200

Explanation

Question 96 of 125

1

A spreader is looking for an opportunity in crude oil futures. He studies the
following prices:
Dec. $44.58lbbl.
Jan. $42.32lbbl.
Feb. $41.80lbbl.
Which of the following spreads would be most likely to be profitable?

Select one of the following:

A. The Dec./Feb. spread
B. The Dec./Jan. spread
C. The Feb/lDec. spread
D. The Jan./Dec. spread

Explanation

Question 97 of 125

1

A spreader bought an October 400 gold call at $13 .00/troy oz. and sold an August
410 gold call at $6.80. What is his maximum possible profit and his maximum
potential loss?

Select one of the following:

A. $620 profit; $380 loss
B. $380 profit; $620 loss
C. Cannot be determined from the information provided
D. None of the above

Explanation

Question 98 of 125

1

A limited risk spread is:

Select one of the following:

A. A horizontal spread
B. A bear spread
C. A diagonal spread
D. A bull spread

Explanation

Question 99 of 125

1

The CFTC sets certain requirements for CTAs due to the fiduciary nature of their
relationship with their clients. CTAs are required to include in their Disclosure
Documents:

Select one of the following:

A. Business background for the 3 preceding years for the CTA and each
principal
B. Actual performance record for the 3 preceding years for the CTA and
each principal
C All litigation within the 3 preceding years for the CTA and each principal
D, The Cautionary Statement, "The Commodity Futures Trading Commission
has not passed upon the merits of participating in this trading program
nor has the Commission passed on the adequacy or accuracy of this
Disclosure Document."

Explanation

Question 100 of 125

1

When buying an option, it is important to look for one with a large time value
because time value increases as the option moves into-the-money:

Select one of the following:

True
False

Explanation

Question 101 of 125

1

A CTA is exempt from registration with the CFTC for any of the following
reasons, except:

Select one of the following:

A. He writes a newsletter, but does not manage any accounts
B. He gives advice for management of a pool, but is exempt from registration
as a CPO
C. He is a dealer in the cash market who gives trading advice in line with the
cash market business
D. ~ He is a CPO and the advice is given in the course of his business

Explanation

Question 102 of 125

1

Futures contract delivery:

Select one of the following:

A. Takes place during the delivery period
B. Transfers title to the physical commodity
C. Delivers the commodity to the oldest outstanding long
D.. All of the above

Explanation

Question 103 of 125

1

CTAs are required to keep certain records in an accurate and orderly fashion at
their main business office. The following records are required to be readily
available for the Commission's inspection, except:

Select one of the following:

A. Clients' and subscribers' names and addresses
B. Powers of Attorney authorizing the CTA to trade on the client's behalf
C. Copies of confirmations of each transaction, Purchase and Sale Statement,
and monthly statement received from the FCM
D. The CTA's most recently filed Income Tax return

Explanation

Question 104 of 125

1

Commodity Pool Operator (CPO) means anyone engaged in a business such as
an investment trust, or syndicate, who solicits, accepts, or receives funds, securities
or property for the purpose of trading in any commodity for future delivery
traded on an exchange or board of trade. A person is exempt from registration as
a CPO if the following conditions are met, except:

Select one of the following:

A. He does not receive any compensation for operating the pool
B He operates only one pool at any time
C, He does not do any advertising in connection with the pool
D. He is an AP and the pool is operated as part of his employment as an AP

Explanation

Question 105 of 125

1

Delta correlates the movement of a futures option premium to the underlying
futures price. Beta correlates the movement of a stock or portfolio to the movement
of an index:

Select one of the following:

True
False

Explanation

Question 106 of 125

1

Futures Commission Merchants (FCMs) are individuals, corporations, etc., who
are engaged in soliciting or accepting orders for the purchase or sale of a futures
contract. An FCM accepts money, securities, or property to margin or guarantee
the trades accepted; therefore, FCMs are required to comply with CFTC regulations
governing the proper handling of accounts. FCMs must do all ofthe following,
except:

Select one of the following:

A. Maintain trading records for 3 years
B. Report daily on positions in excess of set limits for all traders,
C. Maintain their funds in accounts separate from customers' funds'
D. Prohibit floor brokers from trading for their own accounts while holding a
customer's order for the same trade

Explanation

Question 107 of 125

1

When a put is exercised, the writer receives a short futures position:

Select one of the following:

True
False

Explanation

Question 108 of 125

1

Each of the different stock indexes has a different "character." The Value Line
Average, for example, requires a very broad based market movement to move
the index. The Dow Jones Industrial Average Index is

Select one of the following:

A.. Mostly blue chip stocks
B. A geometrically weighted index
C. Made up of 20 stocks
D. All of the above

Explanation

Question 109 of 125

1

speculator buys 2 Jan. 75 orange juice calls at 6.70¢/lb.and sells 2 Jan. 80
orange juice calls at 4.80¢/lb. What are his maximum profit potential and maximum
possible loss before commissions if each contract contains 15,000 lbs.?

Select one of the following:

A. $465 profit; $285 loss
B. $285 profit; $465 loss
C. $570 profit; $930 loss
D. $930 profit; $570 loss

Explanation

Question 110 of 125

1

Recordkeeping for CPOs is comparable to that for CTAs, with the following
additional information to be available from the CPO for inspection by the CFTC:

Select one of the following:

A. A journal of original entry, showing all receipts and disbursements
B. Adjusting entries and any other records of original entry forming the basis
of entries in any ledger
C. A general ledger containing details of all asset, liability, capital, income,
and expense accounts
D. All of the above

Explanation

Question 111 of 125

1

Sam Spreader sees a profitable opportunity in Eurodollar futures options. He
buys the September 9750 call and sells the December 9800 call. This is an
example of a:

Select one of the following:

A . Horizontal spread
B Diagonal spread
C. Vertical spread
D. Straddle

Explanation

Question 112 of 125

1

There are two common types of futures spreads: bull spreads and bear spreads.
A bear spread has:

Select one of the following:

A. Limited risk and unlimited profit potential
B. Limited risk and limited profit potential
C. Unlimited risk and unlimited profit potential
D. Unlimited risk and limited profit potential

Explanation

Question 113 of 125

1

An order to sell at 98.87 stop 98.00 limit could be filled at any of the following
prices, except:

Select one of the following:

A. 98.90
B. 98.50
C. 98.00
D. 97.95

Explanation

Question 114 of 125

1

A speculator deposits $20,000 in a margin account. Soon, he sees an opportunity
in U.S. Dollar Index futures, expecting them to rise. Margin for a U.S. Dollar
Index contract with his broker is $3,000. He buys the maximum number of
March futures contracts at 89.64 that he can with the $20,000 in his account.
Prices rise to 92.22, and he sells his positions, receiving his fill at 92.19. U.S.
Dollar Index contracts are $1,000 times the index. Commissions were $37.50 per
round turn. What was his net return on invested margin?

Select one of the following:

A. 31.5%
B. 75.4%
C. 76.5%
D. 12.8%

Explanation

Question 115 of 125

1

When a client is buying and selling only futures options, he is not required to put
up margin money or meet margin calls:

Select one of the following:

True
False

Explanation

Question 116 of 125

1

Futures options can be used to hedge either cash or futures positions. To hedge
with futures options, the hedger writes a call or a put:

Select one of the following:

True
False

Explanation

Question 117 of 125

1

A trader decides there are some profitable spreading opportunities in wheat
options. The market is inverted and the trader thinks a bear put spread would be
a good idea. Which positions would he enter:

Select one of the following:

A. Buy Sep 310 com put, sell Dee 310 com put
B. Buy Dec 310 com put, sell May 310 com put
C. Buy Dec 320 com put, sell Dee 300 com put
D. Buy Dec 300 com put, sell Dee 320 com put

Explanation

Question 118 of 125

1

A Swiss watch exporter sends most of his handcrafted watches to the United
States, and is usually paid in Dollars. He thinks that the strength of the Dollar is
thoroughly overrated, and wants to hedge his Dollar receipts. He would rather
not use futures because he does not want to have to meet margin calls if the
market moves against his hedge; the options markets appeal to him more. He
would probably:

Select one of the following:

A. Sell Swiss Franc calls
B. Buy Swiss Franc calls
C. Sell Swiss Franc puts
D. Buy Swiss Franc puts

Explanation

Question 119 of 125

1

Futures options expire about one month prior to the underlying futures contract
delivery period, except:

Select one of the following:

A. Broad-based Stock Index futures options
B. T-Bond futures options
C. Com futures options
D. Gold futures options

Explanation

Question 120 of 125

1

You handle an account for a securities dealer who has a $3 million inventory of
5% T-Bonds maturing in 2004. He wishes to hedge his position in options on
bonds, which reflect an 6% coupon ($100,000 face value per contract). The
. conversion factor of .9475 gives the difference between the cash position and the
6% coupons. How many options are used to provide a weighted hedge?

Select one of the following:

A. 28 calls
B. 29 puts
C. 29 calls
D. 28 puts

Explanation

Question 121 of 125

1

A storage hedge is used for protection when a weakening basis is anticipated:

Select one of the following:

True
False

Explanation

Question 122 of 125

1

In the daily clearing and settlement of options, gains and losses are calculated on
the change in

Select one of the following:

A. Strike prices
B. Premiums
C Underlying futures prices
D. Both premiums and underlying futures prices

Explanation

Question 123 of 125

1

In futures trading, the Commodity Customer Agreement primarily serves the
following purpose:

Select one of the following:

A. To assure the customer of payment of funds such as customer margins
B. To absolve the exchange from responsibility for losses occurring in
futures trading
C. To prevent a customer from filing a law suit against the brokerage firm
D. To allow the brokerage firm to offset positions in the account if margin
calls are not met

Explanation

Question 124 of 125

1

The technical price range where the heaviest selling of a commodity futures
contract would be expected is called:

Select one of the following:

A. Selling range
B. Congestion area
C. Bear market
D. Resistance area

Explanation

Question 125 of 125

1

Buying a June 104 T-Bond put and selling a June 106 T-Bond put with June TBond
futures trading at 106-00 is:

Select one of the following:

A A vertical put spread
B: Initiated at a credit
C. A strangle
D. None of the above

	Created by Eric Kay almost 7 years ago

Series 3 CTA education Quiz on Series 3 final exam 2, created by Eric Kay on 27/09/2017.

Series 3 final exam 2

Question 1 of 125

Select one of the following:

Explanation

Question 2 of 125

A CPO need not disclose for a pool for which he has participants but 'has not commenced trading:

Select one of the following:

Explanation

Question 3 of 125

Assignment of futures options includes the notification of the seller of a put or call that the buyer has exercised the option:

Select one of the following:

Explanation

Question 4 of 125

Cash settlement occurs in which of the following contracts:

Select one of the following:

Explanation

Question 5 of 125

Upon filling an order, the FCM reports to his IB that the IB's order has been filled. The IB need not time stamp the order because the FCM is required to time stamp it upon calling the IB:

Select one of the following:

Explanation

Question 6 of 125

As an option approaches expiration, its time value decreases at an accelerating rate:

Select one of the following:

Explanation

Question 7 of 125

An oil refinery has entered into a forward contract to buy crude oil at a fixed price in 2 months for refining. To hedge against the possibility of declining prices for petroleum products, the refinery may:

Select one of the following:

Explanation

Question 8 of 125

A pool maintains 50% of its margin requirements in T-Bills. This fact must be disclosed in its Disclosure Document:

Select one of the following:

Explanation

Question 9 of 125

An FCM and a CPO have an agreement whereby the FCM is required to remit a fee to the CPO for trading business. This does not affect the operation of the pool and therefore need not be disclosed:

Select one of the following:

Explanation

Question 10 of 125

Security Futures Products are:

Select one of the following:

Explanation

Question 11 of 125

Select one of the following:

Explanation

Question 12 of 125

According to NFA Rule 2-30 (the "Know your Customer" rule), an AP who solicits accounts must decide what additional risk disclosure information might be appropriate for his new customer:

Select one of the following:

Explanation

Question 13 of 125

A Futures Commission Merchant, in its discretion, may liquidate any customer's open positions if the customer fails to meet a margin call on time:

Select one of the following:

Explanation

Question 14 of 125

The Customer's Commodity Agreement usually contains which of the following:

Select one of the following:

Explanation

Question 15 of 125

Using basis trading principles, your customer would have a strengthening of the basis when the cash price remains unchanged and the futures price falls:

Select one of the following:

Explanation

Question 16 of 125

October gold futures are trading at $404.80/troy oz. Your customer buys one October 405 call at $9.60, sells two October 415 calls at a total of $12.00, and / buys one October 425 call at $3.20. Your customer has

Select one of the following:

Explanation

Question 17 of 125

A Member, unless under investigation or disciplinary charges by the NF A, may resign at any time by filing written notice with the Secretary:

Select one of the following:

Explanation

Question 18 of 125

Daily price limits for single-stock futures:

Select one of the following:

Explanation

Question 19 of 125

NFA Compliance Rule 2-4 says, "Members and Associates shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their commodity futures business.":

Select one of the following:

Explanation

Question 20 of 125

Researching inflation rates around the world, you have found the following countries'rates: U.S. 4% Japan 6% Switzerland 3% European Union 5% Great Britain 4% One of your clients is interested in trading currency futures options. You might suggest that your client:

Select one of the following:

Explanation

A CPO need not disclose for a pool for which he has participants but 'has not
commenced trading:

Assignment of futures options includes the notification of the seller of a put or call
that the buyer has exercised the option:

Upon filling an order, the FCM reports to his IB that the IB's order has been
filled. The IB need not time stamp the order because the FCM is required to time
stamp it upon calling the IB:

As an option approaches expiration, its time value decreases at an accelerating
rate:

An oil refinery has entered into a forward contract to buy crude oil at a fixed
price in 2 months for refining. To hedge against the possibility of declining prices
for petroleum products, the refinery may:

A pool maintains 50% of its margin requirements in T-Bills. This fact must be
disclosed in its Disclosure Document:

An FCM and a CPO have an agreement whereby the FCM is required to remit a
fee to the CPO for trading business. This does not affect the operation of the
pool and therefore need not be disclosed:

According to NFA Rule 2-30 (the "Know your Customer" rule), an AP who
solicits accounts must decide what additional risk disclosure information might be
appropriate for his new customer:

A Futures Commission Merchant, in its discretion, may liquidate any customer's
open positions if the customer fails to meet a margin call on time:

Using basis trading principles, your customer would have a strengthening of the
basis when the cash price remains unchanged and the futures price falls:

October gold futures are trading at $404.80/troy oz. Your customer buys one
October 405 call at $9.60, sells two October 415 calls at a total of $12.00, and
/ buys one October 425 call at $3.20. Your customer has

A Member, unless under investigation or disciplinary charges by the NF A, may
resign at any time by filing written notice with the Secretary:

NFA Compliance Rule 2-4 says, "Members and Associates shall observe high
standards of commercial honor and just and equitable principles of trade in the
conduct of their commodity futures business.":

Researching inflation rates around the world, you have found the following
countries'rates:
U.S. 4%
Japan 6%
Switzerland 3%
European Union 5%
Great Britain 4%

One of your clients is interested in trading currency futures options. You might
suggest that your client:

When an m is guaranteed, that means that the m has an FCM who will provide
$30,000 net capitalization if the m needs the money to satisfy NFA capitalization
requirements, while an independant IB has its own $30,000 net capitalization.

The Commodity Exchange Act requires bonafide hedging customers to meet
minimum capitalization requirements:

NFA Rule 2-30, the "Know your customer rule," requires the Member or Associate
to obtain a customer's:

Chicago Board of Trade Rule 431.02 states that "changes in margin requirements
shall be effective on all transactions.":

An AP is required to reregister with the CFTC when he moves from one FCM to
another, even though his registration has not expired and all proper subsequent
filings have been made:

Your customer enters a long futures hedge. If the basis strengthens, he will not
only be fully protected against a price rise, but he will also earn a profit from the
change in basis:

Before a customer opens a discretionary futures account, the CFTC requires that
the RCR obtain all of the following, except:

Any up front fees and expenses charged by a CPO or CTA to his customer must
be disclosed in the Risk Disclosure Statement:

Prices for com futures are as follows:
March $2.49
July $2.45
Dec $2.4425
May $2.5750
Sept $2.50

Based on these prices, you would conclude that the market has:

The Options Risk Disclosure Statement requires that an FCM provide a trader
which of the following before he enters an option trade:

A sell MIT order becomes a market order when the commodity sells (or is bid) at
or below the order price:

A customer "give-up" is a trade executed by one broker for the client of another
broker and then "given-up" to the regular broker:

The Customer's Commodity Agreement must be signed by the customer to
assure the FCM that:

Exchange regulations do not require which of the following for proper handling of
discretionary accounts