Test Bank
Fundamentals of Futures and Options
Markets 9th Edition Global Edition Hull
Hull Futures & Options — Original Practice Exam
Set 1: Questions 1–40 (A–D with answers + solutions)
1. A futures contract is best described as:
A. A private loan agreement
B. An obligation traded OTC only
C. A standardized exchange-traded agreement
D. A non-binding option
Answer: C
Solution: Futures are standardized and traded on exchanges.
2. The main function of margin in futures markets is to:
A. Increase leverage
B. Reduce credit risk
C. Guarantee profits
D. Fix contract price
Answer: B
Solution: Margin reduces default risk between counterparties.
3. Marking to market means:
A. Setting contract price at initiation only
B. Daily settlement of gains and losses
,C. Ignoring losses until expiry
D. Paying only at maturity
Answer: B
Solution: Futures are settled daily.
4. A long futures position benefits when:
A. Price decreases
B. Price increases
C. Volatility decreases
D. Interest rates rise only
Answer: B
Solution: Long positions profit from rising prices.
5. A short futures position means:
A. Right to buy
B. Obligation to buy
C. Obligation to sell
D. No obligation
Answer: C
Solution: Short = agree to sell in future.
6. A call option gives the holder the right to:
A. Sell asset
B. Buy asset
C. Exchange currencies
D. Borrow asset
Answer: B
7. A put option gives the holder the right to:
, A. Buy asset
B. Sell asset
C. Hold asset only
D. Exchange futures
Answer: B
8. If S > K, a call option is:
A. Out of the money
B. At the money
C. In the money
D. Worthless always
Answer: C
9. Intrinsic value of a put option is:
A. Max(S − K, 0)
B. Max(K − S, 0)
C. S + K
D. K − S always
Answer: B
10. Hedging is mainly used to:
A. Increase speculation
B. Eliminate all risk
C. Reduce price risk
D. Maximize volatility
Answer: C
11. Futures contracts are standardized to:
A. Reduce liquidity
B. Increase counterparty risk
Fundamentals of Futures and Options
Markets 9th Edition Global Edition Hull
Hull Futures & Options — Original Practice Exam
Set 1: Questions 1–40 (A–D with answers + solutions)
1. A futures contract is best described as:
A. A private loan agreement
B. An obligation traded OTC only
C. A standardized exchange-traded agreement
D. A non-binding option
Answer: C
Solution: Futures are standardized and traded on exchanges.
2. The main function of margin in futures markets is to:
A. Increase leverage
B. Reduce credit risk
C. Guarantee profits
D. Fix contract price
Answer: B
Solution: Margin reduces default risk between counterparties.
3. Marking to market means:
A. Setting contract price at initiation only
B. Daily settlement of gains and losses
,C. Ignoring losses until expiry
D. Paying only at maturity
Answer: B
Solution: Futures are settled daily.
4. A long futures position benefits when:
A. Price decreases
B. Price increases
C. Volatility decreases
D. Interest rates rise only
Answer: B
Solution: Long positions profit from rising prices.
5. A short futures position means:
A. Right to buy
B. Obligation to buy
C. Obligation to sell
D. No obligation
Answer: C
Solution: Short = agree to sell in future.
6. A call option gives the holder the right to:
A. Sell asset
B. Buy asset
C. Exchange currencies
D. Borrow asset
Answer: B
7. A put option gives the holder the right to:
, A. Buy asset
B. Sell asset
C. Hold asset only
D. Exchange futures
Answer: B
8. If S > K, a call option is:
A. Out of the money
B. At the money
C. In the money
D. Worthless always
Answer: C
9. Intrinsic value of a put option is:
A. Max(S − K, 0)
B. Max(K − S, 0)
C. S + K
D. K − S always
Answer: B
10. Hedging is mainly used to:
A. Increase speculation
B. Eliminate all risk
C. Reduce price risk
D. Maximize volatility
Answer: C
11. Futures contracts are standardized to:
A. Reduce liquidity
B. Increase counterparty risk
