Series 3 final exam 2

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:

Cash settlement occurs in which of the following contracts:

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:

Security Futures Products are:

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

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

Daily price limits for single-stock futures:

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:

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

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

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:

An example of a Treasury bond bull call spread is:

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

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

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:

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?

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:

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:

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:

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

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:

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:

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?

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:

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:

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?

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

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:

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

"Short covering" means:

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

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?

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:

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

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?

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

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?

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:

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:

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:

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:

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:

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:

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.

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:

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?

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:

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

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?

Vertical option spreads include:

When a call option is exercised, the writer receives:

Intrinsic value is:

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

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?

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?

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?

A limited risk spread is:

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:

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

Futures contract delivery:

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:

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:

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:

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

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.?

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:

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:

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

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

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?

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:

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:

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

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?

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

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

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

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