Chap 13 - Futures Markets Quiz

Interest rate futures are not available on

• Treasury bonds

• The S&P 500 index

• Treasury notes

• Eurodollar CDs

Stock index futures cannot be closed out before the settlement date

• True

• False

Five (5) fundamental benefits resulting from the innovation and growth of the original midwest grain futures markets that are essential to the role of futures markets still today include: Risk Management, Transparency, Price Discovery, Liquidity, and _______.

• Debt

• Bankruptcy

• Security

• Uncertainty

• Unemployment

Dynamic asset allocation involves the switching between risky and low-risk investments by institutional investors over time in response to changing expectations.

• True

• False

Since stock index futures prices are primarily driven by movements in the corresponding stock indexes, participants in stock index futures monitor indicators that may signal changes in the stock indexes.

• True

• False

Who takes positions in futures to reduce their exposure to future movements in interest rates or stock prices.

• Position traders

• Day traders

• None of the above

• Hedgers

Settlement of stock index futures contracts occurs through delivery of the underlying securities.

• True

• False

Which of the following is not a type of risk associated with futures contracts?

• Liquidity risk

• Basis risk

• Post payment risk

• Market risk

The effectiveness of a cross-hedge depends on the degree of correlation between the changes in the market values of the two financial instruments.

• True

• False

Participants who expect the stock market to perform poorly before the settlement date may consider selling S&P 500 index futures.

• True

• False