Hull:Options,Futures,andOtherDerivatives,NinthEditionChapter2:MechanicsofFuturesMarketsMultipleChoiceTestBank:QuestionwithAnswers1.WhichofthefollowingistrueA.Bothforwardandfuturescontractsaretradedonexchanges.B.Forwardcontractsaretradedonexchanges,butfuturescontractsarenot.C.Futurescontractsaretradedonexchanges,butforwardcontractsarenot.D.Neitherfuturescontractsnorforwardcontractsaretradedonexchanges.Answer:CFuturescontractstradeonlyonexchanges.Forwardcontractstradeonlyintheover-the-countermarket.2.WhichofthefollowingisNOTtrueA.FuturescontractsnearlyalwayslastlongerthanforwardcontractsB.Futurescontractsarestandardized;forwardcontractsarenot.C.Deliveryorfinalcashsettlementusuallytakesplacewithforwardcontracts;thesameisnottrueoffuturescontracts.D.Forwardcontractsusuallyhaveonespecifieddeliverydate;futurescontractoftenhavearangeofdeliverydates.Answer:AForwardcontractsoftenlastlongerthanfuturescontracts.B,C,andDaretrue3.Inthecornfuturescontractanumberofdifferenttypesofcorncanbedelivered(withpriceadjustmentsspecifiedbytheexchange)andthereareanumberofdifferentdeliverylocations.WhichofthefollowingistrueA.Thisflexibilitytendsincreasethefuturesprice.B.Thisflexibilitytendsdecreasethefuturesprice.C.Thisflexibilitymayincreaseandmaydecreasethefuturesprice.D.ThisflexibilityhasnoeffectonthefuturespriceAnswer:BThepartywiththeshortpositionchoosesbetweenthealternatives.Thealternativesthereforemakethefuturescontractmoreattractivetothepartywiththeshortposition.Thelowerthefuturespricethelessattractiveitistothepartywiththeshortposition.Thebenefitofthealternativesavailabletothepartywiththeshortpositionisthereforecompensatedforbythefuturespricebeinglowerthanitwouldotherwisebe.4.Acompanyentersintoashortfuturescontracttosell50,000unitsofacommodityfor70centsperunit.Theinitialmarginis$4,000andthemaintenancemarginis$3,000.Whatisthefuturespriceperunitabovewhichtherewillbeamargincall?A.78centsB.76centsC.74centsD.72centsAnswer:DTherewillbeamargincallwhenmorethan$1000hasbeenlostfromthemarginacco...
