22 Questions
Which one of the following best describes a long forward position?
Agreeing to buy the underlying asset at a certain price in the future
Which one of the following best describes arbitrage?
Taking a position in two or more different markets to lock in a profit
What is the difference between selling a call option and buying a put option?
Selling a call option involves giving someone else the right to buy an asset from you
According to the text, when you buy a put option, the payoff is
positive
In problem 1.6, if the cotton price at the end of the contract is 48.20 cents per pound, how much does the trader gain or lose?
$5,900 loss
Which market quotes prices as the number of US dollars per unit of foreign currency?
Foreign exchange futures market
What is the purpose of margins in futures contracts?
To protect investors against default
What are the most important aspects of designing a new futures contract?
All of the above
What does a stop order to sell at $2 mean?
An order to sell at a price of $2 or less
Which of the following is true about an exchange-traded stock option?
It is a security sold by one investor to another
What is the purpose of a futures contract?
To hedge against price fluctuations
Under what circumstances will the holder of a March call option to buy a share for $50 make a profit?
If the stock price is above $52.50 in March
Under what circumstances will the seller of a June put option to sell a share for $60 make a profit?
If the stock price is below $56.00 in June
According to the text, if the futures price of a commodity is greater than the spot price during the delivery period, what can an arbitrageur do to make an immediate profit?
Buy the asset and short a futures contract
What happens if the futures price is less than the spot price during the delivery period?
An arbitrageur can take a long futures position but cannot force immediate delivery of the asset
What strategy may companies interested in acquiring the asset use if the futures price is less than the spot price during the delivery period?
Enter into a long futures contract and wait for delivery to be made
What is the total payoff from the two contracts entered into on July 1, 2011 and September 1, 2011?
1475 - 5.1
What is the open interest of a futures contract?
The total number of long positions outstanding
Which of the following is a way to hedge exchange rate risk for a US company that expects to pay 1 million Canadian dollars in six months?
Entering into a long forward contract to buy 1 million Canadian dollars
If the exchange rate at the end of a short forward contract on 100 million yen is $0.0074 per yen, how much does the trader gain or lose?
The trader gains $60,000
Which of the following is NOT a likely reason for investors to use a futures contract on long-term Treasury bonds?
To diversify their investment portfolio
What does it mean when someone says that options and futures are zero-sum games?
The net gain to all parties involved is zero
Taxation on Foreign Exchange Profits Quiz: Test your knowledge on the taxation implications of foreign exchange profits. Learn about the differences in tax treatment for hedgers and speculators and understand how profits are realized on a day-by-day basis.
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