1.

The seller of a futures contract is called the

A) Short. B) Long. C) Speculator.

2. The process by which a futures contract is terminated by a transaction that is equal and opposite from the one that initiated the position is called

A) Open interest. B) Offset. C) Delivery.

3. Similar futures contracts can be traded on

A) Only one exchange in any given country. B) Up to three exchanges in the same country. C) Multiple exchanges regardless of location.

4. Which of the following items in a futures contract is standardized?

A) Total number of contracts available for purchase and sale. B) Size - the amount of the underlying item covered by the contract. C) Price of the underlying commodity.

5. Futures contracts can be settled

A) Only by delivery. B) Only by cash-settlement. C) Either by delivery or cash settlement.

6. A futures option that gives the buyer the right to buy the underlying futures contract is called a

A) Straddle. B) Put. C) Call.

7. Which of the following options will yield a profit to the purchaser?

A) An expired option that is "at the money." B) A call option when the price of the underlying commodity increases above the option's strike price by an amount greater than the premium paid for the option. C) A put option when the price of the underlying increases above the option's strike price by an amount greater than the premium paid for the option.

8. Which statement is correct?

A) The seller of an option has limited liability and unlimited opportunity for gain. B) The seller of an option has unlimited liability and unlimited opportunity for gain. C) The seller of an option has unlimited liability and limited opportunity for gain.

9. Which of the following is a prerequisite for a commodity futures contract?

A) It must be paired with a comparable option on the same commodity.

B) The commodity underlying the futures contract must have low price volatility. C) There must be competition in the underlying cash market.

10. Cash-settlement of futures contracts

A) Is an innovation that failed because it made delivery of certain types of contracts prohibitively expensive. B) Was first introduced In Eurodollar futures in 1981. C) Is no longer is permitted in the U.S.

11. Membership on a futures exchange in the U.S. is open to

A) Trading firms and individuals. B) U.S. corporations and citizens exclusively. C) Individuals only.

12. A futures and options clearinghouse

A) Collects original margin for the futures and options contracts traded on the exchange. B) Sets the cash-market price on all commodities, financial instruments and indexes on which futures and options contracts are traded on the exchange. C) Is composed of all members of the futures exchange it serves.

13. Futures and over-the-counter derivatives are similar because

A) Both are tailored (e.g., non-standardized) instruments.

B) Both require margins collected by a clearinghouse. C) Neither of the above.

14. The mark-to-the-market system of futures margining

A) Assures that the value of customer accounts are kept current. B) Sets the interest rate on customer margin deposits. C) Typically requires payments to be made on a weekly basis.

15. Open-outcry futures trading pits are

A) Open to all persons interested in buying or selling futures contracts. B) Open only to exchange members with floor trading privileges. C) The sole method of futures trading in the United States.

16. A limit order directs the broker to

A) Execute a customer's trade at a specific price (or better). B) Execute a customer's order within a specified period of time. C) Execute a customer's order immediately at the current price.

17. The counterparty to every cleared futures or futures option trade is

A) The customer's futures commission merchant. B) The exchange's clearinghouse.

C) The customer who took the opposite side of the trade.

18. The futures settlement price is

A) The price, set at the end of each trading day, that is used to mark futures contracts to the market. B) The average price paid on a futures contract during a trading session. C) The value of a long or short position at execution.

19. A commodity trading advisor (CTA)

A) Is responsible for trading individually managed accounts. B) Is not permitted to trade for a commodity pool or fund. C) May not charge an incentive fee.

20. Variation margin

A) Is collected each day by a futures clearinghouse from clearing members who have losses on their futures contracts. B) Is paid each day by a futures clearinghouse to clearing members who have losses on their futures contracts. C) Both of the above.

21. Futures customers' funds may be held by

A) Futures commission merchants and futures clearinghouses. B) Futures commission merchants only.

C) Futures clearinghouses only.

22. An introducing broker (IB) in the futures industry

A) Must be guaranteed by a futures commission merchant. B) Services customer accounts. C) Cannot pay commissions to its sales force.

23. Hedging cannot

A) Eliminate price level risk. B) Stabilize cash flows. C) Eliminate basis risk.

24. When an importer of Japanese cars buys yen futures against her yen liability, she is

A) Initiating a hedge. B) Pooling its interests. C) Offsetting its futures position.

25. Commodity pools offer

A) Limited liability since the investor's risk is no greater than the amount of capital invested. B) Limited upside potential, since commodity pools grant options. C) Neither of the above.

26. A contango market

A) Results from unusually high periods of price volatility in a futures market. B) Results from increasing costs over time associated with the carrying charges of an underlying commodity. C) Results from decreasing prices associated with low demand for the underlying commodity.

27. Which of the following is an intramarket futures spread?

A) A long position in one futures contract and a short position in a different, but economically related, futures contract on the same exchange. B) A long position in one contract month and a short position in another contract month in the same futures contract on the same exchange. C) A long position in one futures contract and short positions (of an equivalent amount) of futures contracts on products derived from the commodity underlying the long futures contract.

28. A trade involving a long soybean futures position and short positions in soybean oil and meal futures is an example of

A) An intertemporal spread. B) An intermarket spread. C) Agricultural hedging.

29. The federal government agency that regulates U.S. futures markets is called the

A) National Futures Association.

B) Securities and Futures Exchange Commission. C) Commodity Futures Trading Commission.

30. The National Futures Association is

A) A futures exchange and industry self-regulatory organization. B) A futures industry self-regulatory organization. C) The trade association for the futures industry.

1. Futures contracts are:

(a) - the same as forward contracts. (b) - standardized contracts to make or take delivery of a commodity at a predetermined place and time. (c) - contracts with standardized price terms. (d) - all of the above.

2. Futures prices are arrived at by:

(a) - bids and offers. (b) - officers and directors of the exchange. (c) - written and sealed bids. (d) - the Board of Trade Clearing Corporation. (e) - both (b) and (d).

3. The primary function of the Clearing Corporation is to:

(a) - prevent speculation in futures contracts. (b) - ensure the integrity of the contracts traded. (c) - clear every trade made at the CME Group. (d) - supervise trading on the exchange floor. (e) - both (b) and (c).

4. Gains and losses on futures positions are settled:

(a) - by signing promissory notes. (b) - each day after the close of trading. (c) - within five business days. (d) - directly between the buyer and seller. (e) - none of the above.

5. Speculators help to:

(a) - increase the number of potential buyers and sellers in the market. (b) - add to market liquidity. (c) - aid in the process of price discovery. (d) - facilitate hedging. (e) - all of the above.

6. Hedging involves:

(a) - taking a futures position opposite to one's cash market position. (b) - taking a futures position identical to one's cash market position. (c) - holding only a futures market position. (d) - holding only a cash market position. (e) - none of the above.

7. Margins in futures trading:

(a) - serve the same purpose as margins for common stock. (b) - limit the use of credit in buying commodities. (c) - serve as a down payment. (d) - serve as a performance bond. (e) - are required only for long positions.

8. You may receive a margin call if:

(a) - you have a long (buy) futures position and prices increase. (b) - you have a long (buy) futures position and prices decrease. (c) - you have a short (sell) futures position and prices increase. (d) - you have a short (sell) futures position and prices decrease. (e) - both (a) and (d). (f) - both (b) and (c).

9. Margin requirements for customers are established by:

(a) - the Federal Reserve Board. (b) - the Commodity Futures Trading Commission. (c) - the brokerage firms, subject to exchange minimums. (d) - the Clearing Corporation. (e) - private agreement between buyer and seller.

10. Futures trading gains credited to a customer's margin account can be withdrawn by the customer:

(a) - as soon as the funds are credited. (b) - only after the futures position is liquidated. (c) - only after the account is closed. (d) - at the end of the month. (e) - at the end of the year.