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Series 3 final exam

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Quiz on Series 3 final exam, created by Eric Kay on 05/09/2017.
Eric Kay
Quiz by Eric Kay, updated more than 1 year ago
Eric Kay
Created by Eric Kay about 7 years ago
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Resource summary

Question 1

Question
A sell MIT order is activated if the price is traded at or above the order price:
Answer
  • True
  • False

Question 2

Question
A currency speculator believes that the dollar has probably topped out, relative to the Swiss Franc, and will weaken as inflation in the U.S. resumes. The speculator decides to buy 2 March Swiss Franc futures (each 125,000 Francs) at $.7850/ franc. As the speculator expected, the dollar weakens. In early February, the dollar begins to make a correction. The speculator decides that it is time to liquidate, selling 2 futures at $.7975/franc. What is the result of the speculator's trade?
Answer
  • A gain of $1,562.50
  • A gain of $9,765.63
  • A gain of $6,250.00
  • A gain of $3,125.00

Question 3

Question
Research shows that "thin" futures markets (those unable to attract sufficient levels of speculation) experience greater price volatility than markets in which there is active speculation:
Answer
  • True
  • False

Question 4

Question
In the various broad-based stock index futures markets, delivery is made
Answer
  • With common stocks approved by the exchange
  • By cash settlement
  • With common stocks approved by the exchange or by cash settlement
  • By stock transfer certificates

Question 5

Question
Commonly, spread trades involve the simultaneous purchase and sale of two different, but closely related, futures contracts:
Answer
  • True
  • False

Question 6

Question
If your customer took a 3 contract short position in long-term U.S. Treasury Note futures at a price of 112-3/32 ($100,000 per contract) and offset at 106-12/32, how much would he have made or lost on the trade
Answer
  • Lost $5,718.75 per contract
  • Made $5,718.75 per contract
  • Lost $571.88 per contract
  • Made $571.88 per contract

Question 7

Question
Cash forward contracts differ from futures contracts in that they are:
Answer
  • Non-standardized private contracts not subject to the rules and regulations of a futures exchange
  • Not subject to federal regulation
  • Not priced in open, competitive bidding
  • All if the above

Question 8

Question
Anticipating a greater than usual seasonal decline in the demand for gasoline, a • speculator takes a short position of 5 March contracts (each for 42,000 gallons) at $1.2610/gallon at the end of November. In late February, gasoline futures prices have declined to $1.2405; however, gasoline demand seems to be stirring again, and the customer places a stop order to buy at $1.2410 GTC. Several days later the order is filled at $1.2412. As a result of the trade, the speculator has a gain of:
Answer
  • $4,305
  • $,4200
  • $4,147
  • $4,158

Question 9

Question
A put option is in-the-money when the underlying futures is priced above the strike price of the option:
Answer
  • True
  • False

Question 10

Question
A manufacturer uses copper in its products and wishes to use options to protect its raw materials inventory of copper against a decline in price. To hedge, it should buy puts:
Answer
  • True
  • False

Question 11

Question
A speculator buys four March T-Bond futures contracts at 110-04 ($100,000 per contract). Later, he liquidates his position at 110-24. Before commissions, what is the result of the trade?
Answer
  • A loss of $500
  • A gain of $625
  • A gain of $2,500
  • A loss of $2,000

Question 12

Question
Your customer has researched the Live Cattle futures market and has identified a spread opportunity. October Live Cattle are trading at a $.03 premium over August Live Cattle. Believing that the spread will narrow, your customer would spread by buying August Live Cattle and selling October Live Cattle
Answer
  • True
  • False

Question 13

Question
To offset a short futures contract means to sell futures against the purchase of the cash commodity:
Answer
  • True
  • False

Question 14

Question
A customer placing a limit order is entitled to a fill ifthe market touches the limit price after an order is entered. If the fill is not received, the broker is responsible for his failure to fill the order:
Answer
  • True
  • False

Question 15

Question
For stock index futures hedges, basis is:
Answer
  • The relationship of the individual stock to the stock index futures
  • The relationship of the stock index to the individual stock
  • The relationship of the individual stock to the stock index
  • The relationship of the stock index to the stock index futures

Question 16

Question
Your customer has entered a spread by buying the nearby futures month and selling the more distant month. He will profit as the spread narrows:
Answer
  • True
  • False

Question 17

Question
A futures hedge may not give full protection against an adverse price change because of all of the following except:
Answer
  • Cash and futures prices may not change by the same amount
  • The market may be thin
  • Basis may change
  • Cash and futures prices may not move in the same direction

Question 18

Question
If a trader on the New York Board of Trade purchased a cotton futures contract at 52.13¢/lb. (50,000 lbs. per contract) and later offset the position, selling one contract at 55.65¢/lb., and commissions are $58.00 per contract, what is the trader's profit on the trade after paying commissions:
Answer
  • $528
  • $1,760
  • $1,818
  • $1,702

Question 19

Question
When determining the price level at which to place a stop order (either to stop losses or protect profits), which of the following is the key factor:
Answer
  • The current volume in the market
  • The current open interest in the market
  • The current volatility of the market
  • The number of speculators trading in the market

Question 20

Question
The customer deposits $2,250 of margin and takes a long position in wheat at $3.11 per bushel (5,000 bushels per contract). Assuming the margin on wheat is $.15 per bushel, what percentage of the market value of the underlying commodity does the customer's margin represent:
Answer
  • 14.47%
  • 8.42%
  • 4.82%
  • 4.47%

Question 21

Question
T-Bond prices have been on the decline and seem ready for a reversal. Your customer decides to enter a bull spread, buying 3 March T-Bond futures when the contract is at 109-08, and selling 3 September T-Bond futures at 107-07 ($100,000 principal amount each futures contract). Later, your customer unwinds the spread with March futures prices at 110-11 and the September at 108-04. What is the result of the trade?
Answer
  • A loss of $I,093.75
  • A gain of $187.50
  • A loss of $2,718.75
  • A gain of $562.50

Question 22

Question
The soybean market is trading at the following spreads: September 625.25, November 624.00, January 630.75, March 637.75, May 646.50. Given these prices, which of the following spreads is likely to be most profitable?
Answer
  • Sell the September and buy the November
  • Sell the March and sell the May
  • Buy the March and sell the May
  • Sell the January and buy the March

Question 23

Question
Which of the following tends to have the least impact on commodity storage costs?
Answer
  • The prices of substitute goods
  • The rate of inflation
  • Interest rates
  • Insurance costs

Question 24

Question
You have a client who sells an October 405 put on Gold futures and purchases a December 405 put on Gold futures. This is an example of a:
Answer
  • Strangle
  • Calendar spread
  • Bull spread
  • Put straddle

Question 25

Question
A U.S. copper exporter, selling copper to Switzerland, intends to receive his payment in Swiss Francs. He anticipates a strengthening of the dollar relative to the Franc. The exporter would hedge against the possible exchange rate loss by selling Swiss Franc futures:
Answer
  • True
  • False

Question 26

Question
On July 15, a soybean farmer's local cash market price for beans is $6.15 per bushel. November soybean futures are $6.21 per bushel (5,000 bushels per contract). He decides to fully hedge his beans. His order is filled at $6.2150 per bushel. On December 1, the soybean farmer is ready to sell his beans. The best price available in the local market is $6.00 per bushel. On the same date, the November futures are trading in the $6.10-$6.11 per bushel range. He lifts his hedge, receiving confirmation of his fill at $6.1050 per bushel. Ignoring transaction costs, but accounting for the effects of both cash and futures price movements, what is the soybean farmer's gross income per bushel received for his soybeans?
Answer
  • $6.26
  • $6.11
  • $6.00
  • $5.89

Question 27

Question
Your customer takes a short position in 4 December 30-Day Fed Funds contracts at 98.03 ($5,000,000 principal amount per contract). Later, he liquidates at 98.56. Before considering commission costs, the result of the trade is:
Answer
  • A loss of .53,53 basis points, or $2,208.51
  • A gain of .53,53 basis points, or $2,208.51
  • A loss of .53,53 basis points, or $8,834.04
  • A gain of .53,53 basis points, or $8,834.04

Question 28

Question
Assume margin for com futures on the Chicago Board of Trade is $.20 per bushel (5,000 bushels per contract). If a trader has per contract commissions of $40, and goes long 3 contracts at $2.45, what is his percentage of profit on his margin deposited after commissions, assuming he covers his position at $2.71 ?
Answer
  • 42%
  • 126%
  • 378%
  • 86%

Question 29

Question
In futures hedging, it is essential that the futures position taken is:
Answer
  • Larger than but the same risk existing in the cash market
  • Smaller than but opposite the risk existing in the cash market
  • Approximately equal in size and has the opposite risk existing in the cash market
  • Approximately equal in size and has the same risk existing in the cash market

Question 30

Question
To offset the sale of a futures call option, it would be appropriate to buy a put with the same expiration and strike price:
Answer
  • True
  • False

Question 31

Question
hogs in the middle of April, hedging in April lean hog futures contracts (40,000 pounds per contract) at 60.50¢/lb. when the local cash market price is 58.90¢/lb. On April 12,he buys hogs when the local cash price is 63¢/lb. and lifts his hedge at 63.80¢/lb. As a result of the hedge, the meat packer's cost for the live hogs was:
Answer
  • $23,560
  • $117,800
  • $23,880
  • $119,400

Question 32

Question
Which of the following futures options positions is linked most closely to the short futures hedge:
Answer
  • Short a put
  • Long a call
  • Long a put and short a call
  • Long a call and short a put

Question 33

Question
The S&P 500 index futures can properly be used to hedge long securities positions when:
Answer
  • The securities being hedged are preferred stocks --
  • The hedger wants to change some of his unsystematic risk into a general market risk
  • The hedger liquidates his securities position and adds to his portfolio by going short a S&P 500 index futures contract in a bear market
  • Along S&P 500 index futures position is held in the hedger's portfolio

Question 34

Question
A dealer has a large inventory of gold coins and bars, and is considering using COMEX gold futures options to protect against declining gold prices. Which of the following positions would be most appropriate?
Answer
  • Selling in-the-money calls
  • Buying in-the-money puts
  • Selling deep out-of-the money calls
  • Buying deep out-of-the money puts

Question 35

Question
Which of the following scenarios would be an appropriate situation for hedging with the purchase of a Eurodollar put option?
Answer
  • A pension fund holding bonds, to protect against a decline in bond prices
  • An international corporation expecting to issue commercial paper, to protect against a rise in interest rates
  • A S&L making mortgages, to protect against declining interest rates
  • A municipality anticipating the issuance of bonds, to protect against rising interest rates

Question 36

Question
Spread trading always has a lower risk of loss than naked futures trading, and therefore has lower margin requirements:
Answer
  • True
  • False

Question 37

Question
An order reading, "Buy 3 September British Pound at $1.7980, sell 3 December British Pound at $ 1.8170 Stop" is an example of:
Answer
  • A straight spread order
  • A stop spread order
  • A bear spread order
  • A straight stop order

Question 38

Question
A mortgage banker begins to pool mortgages, which he intends to sell in the secondary mortgage market in 4 months. He decides to hedge using the CBOT T-Bond futures You would recommend that he:
Answer
  • Sell T-Bond futures
  • Buy T-Bond futures
  • Sell T-Bond futures and buy cash T-Bonds
  • Buy T-Bond futures and sell cash T-Bonds

Question 39

Question
To buy a straddle in COMEX gold futures options, a customer would: A. B. C. D.
Answer
  • Sell a February 400 call and buy a February 405 put
  • Sell a February 400 call and sell a February 405 put
  • Buy a February 400 call and sell a February 400 put
  • Buy a February 400 call and buy a February 400 put

Question 40

Question
Delivery of physical commodities takes place for less than 3% offutures contracts; however, the ability to deliver is necessary:
Answer
  • To keep cash and futures prices in alignment
  • To comply with NFA regulations
  • To make commodities available for export
  • All of the above

Question 41

Question
When the U.S. dollar strengthens, importers in foreign countries receive more dollars for their domestic currency, making importing U.S. goods more attractive:
Answer
  • True
  • False

Question 42

Question
If your customer places an order to buy 3 Mar. Eurodollars at 97.72 stop 97.86 limit GTW, the order is:
Answer
  • Guaranteed to be filled at the limit price or lower
  • Guaranteed to be filled above the limit price
  • Guaranteed to be filled, but not necessarily at the limit price
  • Not guaranteed to be filled

Question 43

Question
You have a customer who decides.to sell 3 July 50¢ cotton calls and buy 3 July 51 ¢ cotton calls. Such a trading strategy is a:
Answer
  • Butterfly spread"
  • Vertical spread
  • Horizontal spread
  • Diagonal spread

Question 44

Question
Generally, as price volatility in the futures market increases, the potential leverage the market offers increases:
Answer
  • True
  • False

Question 45

Question
On November 1, a meatpacker decides to hedge his needs for live cattle for delivery in the middle of February. He hedges on November 1 in live cattle futures (40,000 pounds each contract), at the prices below: Cash Price Live Cattle Futures Nov. 1 83.90¢llb. 82.10¢llb.' Dec.10 83.02¢llb. 81.85¢llb. Jan. 14 85.1O¢llb. 83.12¢llb. Feb. 10 88.25¢llb. 89.55¢llb . On February 10, he buys the required live cattle in the local cash market and lifts his hedge at the above futures price. Through the hedge, he:
Answer
  • A. Gains 3. 1O¢/lb.
  • B. Gains 7.45¢llb.
  • C. Gains4.35¢llb.
  • D. Gains 1.30¢llb

Question 46

Question
On August 4, your customer took a long position in one US. Treasury Bond futures contract at 110-09 ($100,000 per contract). By August 15, T-Bond futures have risen to 111-21, and you and your customer decide to place a sell stop order at 1100-30to protect profits. On August 20, the market weakens and the stop order is activated and filled at 110-29. As a result of this trade, your customer has:
Answer
  • A. Lost $625.00
  • B. Gained $625.00
  • C. Gained $6i6.25
  • D. Lost $1,375.00

Question 47

Question
You handle an account for a film manufacturer. The firm had hedged a two month silver supply, and to date has added 7.8¢/troy oz. to its projected profits due to the hedge. At this time, you would most prudently advise your customer to:
Answer
  • A Continue with the current hedge
  • B·:- Increase its long hedge
  • C. Liquidate the hedge
  • D. Buy a call to hedge the futures position

Question 48

Question
An order stipulating that it be filled immediately when received by the floor broker, otherwise it is canceled, is called:
Answer
  • A. A contingent order
  • B. A OCO (one cancels other) order
  • C. A FOK (fill or kill) order
  • D. A GTW order

Question 49

Question
Your customer enters a MarchlMay long spread in coffee when March coffee is at 76.05¢/lb. and May coffee is at 78.00¢/lb. (37,500 lbs. per contract). Later, the spread narrows to March 77.55¢ and May 79.05¢. Before commission costs, the customer's result from a spread on 2 contracts is:
Answer
  • A. A loss of$337.50
  • B. A gain of $337.50
  • C. Again of $168.75
  • D. A loss of$168.75

Question 50

Question
In June, a corporate treasurer completed plans to sell $100,000 of corporate bonds in December. AAA corporate bonds are paying 6.2%. The December T-Bond futures are at 5.45%. He decides to hedge. His best strategy would be:
Answer
  • A. Sell December T-Bill futures and buy 6-month T-Bills
  • B. Buy December T-Bond futures
  • C. Buy 6-month T-Bills in the cash market
  • D. Sell December T-Bond futures

Question 51

Question
Which of the following terms means something different from the others
Answer
  • A. Cover your position
  • B. Even up
  • C. Go short
  • D. Liquidate

Question 52

Question
Youhave a customer who is a securities dealer. He is currently holding $3 million in 5~% long-term T-Bondsmaturing in 2002. Anticipating rising rates, the portfolio manager wishes to hedge using Bond futures options, which reflect an 6% coupon ($100,000 per contract). Ifthe bond conversion factor is .9490 to adjust for the difference between the held coupons and the 6% coupons, how many options should he use to provide a weighted hedge?
Answer
  • A. 29 calls
  • B. 29 puts
  • C. 28 calls
  • D. 28 puts

Question 53

Question
Elasticity of supply refers to:
Answer
  • A. The amount the supply of a commodity changes when its demand changes
  • B. The amount the price of a commodity changes when its supply changes
  • C. The amount the price of a commodity changes when its demand changes
  • D. The amount the supply of a commodity changes when its price changes

Question 54

Question
In the daily clearing and settlement of futures options, gains and losses are calculated on the change in:
Answer
  • A. Strike prices
  • B. Premiums
  • C. Underlying futures prices
  • D Both premiums and underlying futures prices

Question 55

Question
Some limit orders in futures are entered with the notation "OB" indicating that the order should be filled at the limit price or better. Using this notation is not ordinarily necessary-most brokers will fill orders at the best possible price; however, there are some instances where the notation "OB" is essential. In which of the following situations would the notation be required?
Answer
  • A. On an order to buy 3 May Crude oil contracts at $44.21 per barrel entered when the current price is $44.15 /
  • B. On an order to sell 2 March Com at $2.38 per bushel entered when the ~ current price is $2.37~
  • C. On an order to buy one June S&P 500 at 1028.5 entered when the current price is 1029.95
  • D None of the above

Question 56

Question
All of the following characteristics of a commodity are essential to the viability of the futures market, except:
Answer
  • A Broad-based production
  • B Storability
  • C. Accessible price information
  • D. Definable quality standards

Question 57

Question
On March 1, you and your customer discuss possible spread opportunities in options on Euro FX futures. Both you and he generally expect the Euro to decline during the next 2 months, He is interested in the possibility of a bear call spread. Currently, the December futures are at $1.2050. The December 12050 call carries a premium of 2.70¢/€. The December 12000 call carries a premium of 2.97¢/€. He decides to enter a spread buying 4 December 12050 calls and selling 4 December 12000 calls (125,000 per option). Entering his spread order, you know in advance that your customer's maximum net loss is:
Answer
  • A. $337.50
  • B. $287.50
  • C $1,350.00
  • D $1,150.00

Question 58

Question
Your customer shorts 2 May world sugar futures at 8.16¢ /lb. (112,000 lbs. per contract). Ifthe minimum initial speculative margin is $600 per contract, with a maintenance margin level of $500, at what price level and in what amount would the customer be required to deposit additional margin money:
Answer
  • A. At 8.07¢, $100.80 in additional margin would be required
  • B: At 8.07 ¢, $201.60 in additional margin would be required
  • C At 8.25¢, $201.60 in additional margin would be required
  • D. At 8.25¢, $100.80 in additional margin would be required

Question 59

Question
A Japanese exporter of products to the U.S. has been enjoying the strength of the dollar relative to the yen. He expects the dollar to weaken as the U.S. government continues to print money. He anticipates receivables of $11 ,360,000 during the coming months. The CME yen futures contract calls for delivery of 12.5 million yen, roughly equal to $113,600 per contract. The exporter hedges with 10 yen futures contracts. The yen is at $.009058 on the foreign exchange market and the yen futures are at $.009139. A few months later, the hedge is lifted when the yen is at $.009331 in the foreign exchange market, and the yen futures are at $.009372. If the exporter had not hedged, he would have had an exchange rate loss of:
Answer
  • A: $34,125
  • B. $29,125
  • C. $24,000
  • D. $39,250

Question 60

Question
An order that said "Buy 5 September lumber at 436.70 stop" would be activated when:
Answer
  • A. September trades at 436.69
  • B. September trades at 436.68
  • C. September trades at or is bid at 436.70 or above
  • D. September trades at or is offered at 436.70 or below

Question 61

Question
All stop orders to sell are stop-loss orders to close out existing positions:
Answer
  • True
  • False

Question 62

Question
Open interest is calculated by adding the total number of open longs plus the total number of open shorts:
Answer
  • True
  • False

Question 63

Question
Which inter-market spread would tend to be the lowest risk?
Answer
  • A. Long U.S. T-Bonds, long GNMAs
  • B. Long U.S. T-Bonds, short GNMAs
  • C. Short T-Bonds, long Commercial Paper
  • D, Long U.S. T-Bills, short U.S. T-Bonds

Question 64

Question
As the U.S. dollar rises relative to the Euro:
Answer
  • The gold market tends to decline
  • The gold market tends to rise
  • The gold market is not affected because gold is used strictly for industrial and ornamental purposes '
  • The gold market is affected, but sometimes it will rise, other times decline, as the dollar strengthens

Question 65

Question
Financial leverage is greater as market volatility declines for speculators in financial futures:
Answer
  • True
  • False

Question 66

Question
On April 15, a speculator went net short 2 contracts in Dow Jones Industrial Average futures at 10172 ($10 times the average per contract). On April 20, he offset the position at 10255. Ignoring commission costs, what is the result of the speculator's trades?
Answer
  • A. He made $830.00 per contract
  • B. He made $1,660.00 per contract
  • C. He lost $830.00 per contract
  • D. He lost $1,660.00 per contract

Question 67

Question
For a long hedger in futures, hedging against a rise in prices, a narrowing basis results in the protection from the hedge being incomplete:
Answer
  • True
  • False

Question 68

Question
Which of the following hedging strategies in Canadian Dollar futures options would provide the most protection against a swift sharp increase in the Canadian Dollar exchange rate?
Answer
  • A. Short calls
  • B. Long puts
  • C. Long calls
  • D. None of the above

Question 69

Question
An insurance company portfolio manager anticipates premium inflows in 3 months. He would like to lock in the current market yield on a Treasury Bill investment because he fears interest rates will decline in the meantime. He decides to hedge in Eurodollar futures. He would:
Answer
  • A. Go long the futures
  • B. Go short the futures
  • C. Go long the futures and short call options
  • D. Go short the futures and short call options

Question 70

Question
The October 540 call option on Natural Gas futures is trading at a premium of $.287/mmBTU. Oct. Natural Gas futures are trading at $5.432/mmBTU. Natural . Gas futures are 10,000 mmBTUs per contract. The time value of the option is:
Answer
  • $287.00
  • $255.00
  • $32.00
  • $432.00

Question 71

Question
Your customer has been involved in the financial markets for years, and has almost a "sixth sense" about interest rate fluctuations. He foresees an increase in long-term rates during the next month or so. On January 15, March Treasury Bond futures are at 109-06/32 and the June futures are at 110-10/32 ($100,000 per contract). The customer decides to spread off with 5 JunelMarch spreads. Three weeks later, June futures are at 111-24/32 and the March futures are at 110-03/32. Your customer unwinds the spread at these prices. The result of the spread transaction is:
Answer
  • A. A loss of$4,531.25
  • B. Againof$4,531.25
  • C. A gain of $2,656.25
  • D. A loss of$2,656.25

Question 72

Question
Your customer anticipates borrowing substantial amounts of money for the purchase of real estate in four months time. He expects the current attractive mortgage rates are not going to last until he can lock in his mortgage. Which of the following actions would be advisable to take in futures now to lock in the favorable mortgage rates until the deal is consummated?
Answer
  • Sell 3-month Eurodollar futures
  • Sell T-Bond futures
  • Buy T-Bond futures
  • Buy 3-month Eurodollar futures

Question 73

Question
A trader has a short position in 1 Nasdaq 100 futures contract (contract value equals $100 x the index). On the next to last day of trading, settlement is at 1390.80. On the last day of trading, settlement is at 1372.50. Settlement and delivery for the contract would be made by:
Answer
  • A. Debiting $1,830 from the long's margin account, crediting the short's account $1,830, and closing out their futures positions
  • B. The long receiving stock certificates from the short worth $1,830 and paying $1,830 to the short
  • C. The long receiving stock certificates from the short with a value of $137,250 and paying the short $137,250
  • D. The long receiving $137,250 worth of stock from the short and paying the short $1,830

Question 74

Question
To offset the purchase of a call option on futures, buy a put option of the same expiration and strike price:
Answer
  • True
  • False

Question 75

Question
Margin requirements for futures spread transactions are usually less than margin requirements for net long or short positions because:
Answer
  • A. Spread transactions have more risk than naked trades
  • B. Net long or short positions generally carry more risk than spreads
  • C. Most all spreads are put on and unwound on the same day
  • D. All of the above

Question 76

Question
Which of the following orders is a contingent order?
Answer
  • A. Stop limit
  • B. Market-if-Touched
  • C. One Cancels Other
  • D. Stop

Question 77

Question
Below is a listing of cash market T-Note prices and the June T-Note futures prices for the same dates and times: Cash Futures Cash Futures April 1 113-10 112-045 April 2 112-25 111-21 April 3 112--01 111-12 April 4 111-29 111-055 April 5 112-06 111-31 April 6 112-20 112-005 April 7 112-30 112-09 Between April 2 and April 6, basis:
Answer
  • A. Widened by 16.5/32
  • B. Narrowed by 16.5/32
  • C. Widened by 20.5/32
  • D. Narrowed by 20.5/32

Question 78

Question
When a futures contract trades up the limit:
Answer
  • A. Orders with prices at or below the limit price may be entered for execution
  • B. Only market orders may be entered
  • C. Trading is suspended for that day in that delivery month
  • D. Orders to liquidate existing open positions are not allowed on the exchange floor

Question 79

Question
A speculator is anticipating a rapid decline in S&P 500 futures prices. Which of the following trades in S&P 500 options probably would produce the greatest gain?
Answer
  • A. Buying puts
  • B. Selling puts
  • C. Selling calls
  • D. A bear put spread

Question 80

Question
A fat-cattle feeder hedges by:
Answer
  • A. Buying feeder cattle futures
  • B. Buying com futures
  • C. Selling com futures
  • D. Selling feeder cattle puts

Question 81

Question
When yields on long-term securities are greater than the yields on short-term securities, the yield curve is described as normal:
Answer
  • True
  • False

Question 82

Question
Futures contracts are standardized as to the quality (or a range of standards for quality) ofthe commodity or financial instrument which is good for delivery against a futures contract. If a short going into delivery delivers a commodity or financial instrument oflesser quality than that specified by the contract, the long taking delivery is generally required to pay a premium for the difference in quality:
Answer
  • True
  • False

Question 83

Question
In early October, your hedging customer (a soybean farmer) is anticipating harvest and the sale of his beans in November. Elevators in the area are currently bidding an average of $5.98 per bushel, and the November soybean futures are trading in the $6.12 range. The farmer estimates his total production will be 20,000 bushels, and he asks you to place a hedge with 4 November contracts (5,000 bushels each). The order is confirmed filled at $6.12 per bushel. On November 4, the farmer sells his soybeans at $5.665 per bushel, and he lifts his hedge at $5.7775. What is the net price per bushel received by the farmer?
Answer
  • A. $6.0075
  • B. $6.12
  • C. $5.665
  • D. $5.7775

Question 84

Question
Your customer has entered an order to buy 3 Crude Oil futures contracts at $43.27/bbl. Such an order is good:
Answer
  • A. Till cancelled
  • B. Through the end of the day
  • C. Through the life of the contract
  • D. Through the end of the trading month

Question 85

Question
At the end of each trading day, the clearinghouse adjusts all futures accounts according to gain or loss from price movement for that day. This process is called:
Answer
  • Closing out
  • Settlement
  • Exercising
  • Evening up

Question 86

Question
The price at which a futures transaction is to be executed is specified in all of the following kinds of orders, except:
Answer
  • A. Stop orders
  • B. Market orders
  • C. Limit orders
  • D. Stop Limit orders

Question 87

Question
A portfolio manager for a private pension fund has hedged the anticipated purchase of$2 million of mutual fund shares in the CBOT Dow Jones Industrial Average futures at 10177 ($10 times the average per contract). On the same date, the mutual fund shares are priced at $43.20 in the cash market. Three months later the portfolio manager purchases the mutual fund shares in the cash market at $45.80. He lifts his hedge at 10279. What was the gain as a result of the futures transaction?
Answer
  • A. $1020.00 per contract
  • B. $1046.00 per contract
  • C. $994.00 per contract
  • D. $102.00 per contract

Question 88

Question
Your customer sold 2 May 7900 Swiss Franc calls at a premium of 1.15¢ per Swiss Franc (125,000 SF per option). Ifthe May Swiss Franc futures price is at $.7900 at the time the options expire, the customer would:
Answer
  • A. Sustain a loss of $I,437.50
  • B. Sustain a loss of$2,875 .00
  • C. Break even
  • D. Profit by $2,875.00

Question 89

Question
Your customer is short hedged in S&P 500 futures. The index is at 1101.30 and the futures price is at 1105.90 (futures value equals index number times 250). When the hedge is lifted, the index is at 1113.00 and the futures is 1110.60. Such a change in price and basis will result in a:
Answer
  • A. Gain of 11.70, or $2,925 per contract
  • B. Loss of 11.70, or $2,925 per contract
  • C. Loss of 4.70, or $1,175 per contract
  • D. Gain 7.00, or $1,750 per contract

Question 90

Question
A speculator thinks that Britain's inflationary policies are catching up with the British Pound exchange rate. The Swiss, on the other hand, have paid strict attention to fiscal responsibility. Thus, he expects a change in the relative value of the British Pound and the Swiss Franc. To take advantage of this opportunity, the speculator would most likely buy British Pound futures and sell Swiss Franc Futures:
Answer
  • True
  • False

Question 91

Question
Your customer has gone short 2 corn futures contracts at 228.25¢lbu. (5,000, bushels per contract). Later, he closes out the position at 2l9.50¢lbu. Commission costs were $74.00 per contract. His realized profit is:
Answer
  • A. $437.50
  • B. $801.00
  • C. $875.00
  • D. $727.00

Question 92

Question
A gasoline wholesaler is hedged in Unleaded Gas futures (42,000 gallons per contract). Between the time the hedge is placed and the time the hedger lifts it, basis has narrowed from -$.0880 per gallon to -$.0430 per gallon, producing:
Answer
  • A. A loss of$ 1,890
  • B. A gain of $I,806
  • C. A gain of $3,696
  • D. A loss of $3,780

Question 93

Question
Expecting a rise in copper prices, a speculative customer puts on a spread buying 6 Jut. copper contracts at 123.95¢/lb. and selling 6 September contracts at 124.15¢/lb. (25,000 Ibs. per contract). After a few days, the customer suspects that prices are heading lower, and unwinds his spread with July at 123.55¢/lb. and the September at 123.65¢/lb. Given the change in the spread, this trade produced:
Answer
  • A loss of$600
  • A gain of$900
  • A loss of $1,500
  • A gain of$150

Question 94

Question
Yourcustomer has put on a spread, buying 7 April live cattle contracts at $.8300 per pound and selling June live cattle at $.8030 per pound (40,000 pounds per contract). Later the spread has widened and the customer lifts the spread with the April live cattle at $.8255 and June live cattle at $.7945. The result of his spread trade is:
Answer
  • A loss of$2,380 on the April; a gain of$I,260 on the June for a net loss 0 of$I,120
  • B. A gain of$ 1,120 on the April; a loss of $2,380 on the June for a net loss of$I,260
  • C. A loss of $ 1,260 on the April; a gain of $2,380 on the June for a net gain-o of$I,120
  • D. A loss of$2,380 on the April; a gain of$ 1,120 on the June for a net loss of $1,260

Question 95

Question
If the U.S. dollar exchange rate increases, the following has happened historically:
Answer
  • U.S. silver prices go up
  • U.S. silver prices go down
  • No effect on U.S. silver prices
  • Silver prices decline in other countries

Question 96

Question
Complicated variable price limit systems often apply on the down-side only for broad-based stock index futures, and are called:
Answer
  • A. Stop-loss limits
  • B. Circuit breaker limits
  • C. Down-only limits
  • D. Reset limits

Question 97

Question
For delivery of grain futures contracts on the Chicago Board of Trade, payment is made in full:
Answer
  • A. On first notice day
  • B. By 1:00 p.m. on the day of delivery
  • C. On the last trading day
  • D. None of the above

Question 98

Question
Youare handling a large hedging account in com futures. The account position is short 300,000 bushels. Margin at the exchange minimum is $34,500 (60 contracts, each 5,000 bushels, each margined at $575). There is a credit balance in the account of$54,500. Your customer wishes to call out $25,000. Under CBOT initial and maintenance margin requirements for hedgers:
Answer
  • Your customer can withdraw $25,000
  • The customer may withdraw no more than $20,000
  • If your customer reduces his hedge by 5 contracts, he could withdraw $25,000
  • The customer may withdraw $25,000 only if the credit in excess of the required margin equals $30,000

Question 99

Question
A pool operator must have a record of all participants, and their acknowledgments of receipt of disclosure documents:
Answer
  • True
  • False

Question 100

Question
You are a broker who has a customer with a non-discretionary account. You have discussed a possible crude oil trade with this customer. He agrees that there is a high probability of profit on the trade, but has not indicated the price level at which . an order should be placed. You should enter his order at the market:
Answer
  • True
  • False

Question 101

Question
Under the rules of the exchanges which trade broad-based stock index futures, stock index futures positions remaining open at the end of the last day of trading must be settled in cash:
Answer
  • True
  • False

Question 102

Question
A Disaster Preparedness and Recovery Plan addresses ail of the following items, except:
Answer
  • A. Off-site storage of important information, regularly updated /
  • B. Plans for communication with key personnel and contacts /
  • C. Functional secondary offices in a geographically removed location /
  • D. On-site bomb shelter and gas masks

Question 103

Question
Trading and position limits do not apply to bona fide hedging transactions:
Answer
  • True
  • False

Question 104

Question
CFTC regulations require that written confirmations for futures options transactions be provided to the customer:
Answer
  • The day of the trade
  • No later than the business day following the trade
  • No later than the third business day following the trade
  • At the end of the month

Question 105

Question
Written powers of attorney over discretionary accounts remain in force until revoked in writing (or by death of the customer or the associated person):
Answer
  • True
  • False

Question 106

Question
Under the terms of some futures contracts, speculators may be obligated to make delivery against short contracts.
Answer
  • True
  • False

Question 107

Question
Which of the following disciplinary actions would be the first to be taken against an AP found to have violated CFTC regulations:
Answer
  • Issuance of a fine
  • Issuance of a cease and desist order
  • Temporary suspension of trading privileges
  • Permanent revocation of registration as an AP

Question 108

Question
A pool operator who is advising that pool (acting as a Commodity Trading Advisor)' does not have to register with the NFA as a CTA as long as he is registered as a CPO:
Answer
  • True
  • False

Question 109

Question
A CPO with one CFTCregistered pool having 12 pool participants and $175,000 in capital contributions must be a member of the NFA:
Answer
  • True
  • False

Question 110

Question
The SPAN algorithm is widely used for calculating margin requirements. SPAN stands for:
Answer
  • Secure Portfolio Algorithm Network B. Standard Prime Algorithm Network C. Standard Portfolio Analysis of Risk D. Secure Prime Analysis of Risk
  • B. Standard Prime Algorithm Network
  • C. Standard Portfolio Analysis of Risk
  • D. Secure Prime Analysis of Risk

Question 111

Question
A Commodity Customer Account Agreement form usually authorizes the transfer of a customer's funds from his futures account to his stock account
Answer
  • True
  • False

Question 112

Question
If the NFA's Compliance Director reports the investigation of a possible NFA Rule violation to the Business Conduct Committee, he has 4 months to complete his investigation, during which time the NFA Member or Associate is restricted from trading:
Answer
  • True
  • False

Question 113

Question
A CPO's Disclosure Document must include a record of all withdrawals from the pool in its performance record:
Answer
  • True
  • False

Question 114

Question
A CPO must use the total performance of all his pools as a unit in his Disclosure Document:
Answer
  • True
  • False

Question 115

Question
Your customer, a speculator, has asked you to open a discretionary account to trade futures options. All of the following are required by exchange and NFA regulations, except:
Answer
  • A. The customer having a current account in futures.
  • B. Prior written approval by the employer on the account and executive's discretionary authority.
  • C. Providing the customer with an explanation of the nature and risk of the strategies to be used initially in the account.
  • D. Frequent employer review of the discretionary account

Question 116

Question
A CPO's Disclosure Document need not include the number of units outstanding as a part of its performance record because this may change before the disclosure document is delivered
Answer
  • True
  • False

Question 117

Question
A respondent in a NFA hearing on disciplinary proceedings may have an attorney at law present at any stage of the investigation or disciplinary proceeding except when the NFAPresident, with the concurrence of the NFABoard of Directors or Executive Committee, has reason to believe that summary action is necessary to protect the respondent's customers.
Answer
  • True
  • False

Question 118

Question
An Associated Person may be associated with 2 FCMs at a time:
Answer
  • True
  • False

Question 119

Question
Part C of Rule 2-8 requires an AP to have two years of experience as a broker before being allowed to offered SFPs:
Answer
  • True
  • False

Question 120

Question
As a Registered Representative, handling futures accounts for your customers, you will be primarily responsible for collecting required customer margin deposits
Answer
  • True
  • False

Question 121

Question
A FCM who enters into a guaranteeing agreement with an IB is financially responsible to the customers of the IB in arbitration and reparation proceedings, but is not subject to NFAdisciplinary action based solely on violations committed by the IB.
Answer
  • True
  • False

Question 122

Question
A CPO has been in business for 4 years. It must disclose its entire performance history when it prepares its disclosure document.
Answer
  • True
  • False

Question 123

Question
Under exchange rules, which of the following requirements must be met for proper handling of a discretionary account.
Answer
  • A. Maintenance of a $20,000 minimum net equity at all times.
  • B. The account executive has been registered as a NFA Associate for at least two consecutive years
  • C. A signed customer loan agreement
  • D. Oral approval by the customer as each of the orders is entered

Question 124

Question
If a customer declines to provide an NFA Member or Associated Person with information required by the NFA's "Know Your Customer Rule," Rule 2-30, a member may open an account, or handle futures trading for a customer upon:
Answer
  • A. The customer's approval
  • B. The NFA's approval
  • C. The CFTC's approval
  • D. The branch manager's approval

Question 125

Question
CPOs must periodically distribute an Account Statement in the form of a Statement of Income (Loss) and a Statement of Changes in Net Asset Value prepared in accordance with Generally Accepted Accounting Principles. The Account Statement must be distributed at least monthly for pools with net assets of more than $200,000:
Answer
  • True
  • False
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