Fin 470 Exam 2 Questions with Verified Correct
Answers
benefits of futures and forwards
futures
- no counter party risk, standardized implies higher liquidity
forwards
- customized (date/amount)
costs of futures and forwards
futures
- may not be exactly what you need (set date or amount)
- pay broker commissions
forward
- pay banker bid-ask spreads
yesterday, you entered a futures contract (1000) barrels to buy oil at $62 per barrel.
Suppose the futures price closes today at $65. How much have you made/lost?
A. $3,000
B. $2,000
C. -$2,000
,D. -$3000
E. none of the above
A. made $3000
- started: $62 x 1000= 62,000
- End: $65 x 1000 = 65,000
yesterday, you entered a futures contract (1000) barrels to SELL oil at $57 per barrel.
Suppose the futures price closes today at $55.50. How much have you made/lost?
A. $2,000
B. $2,500
C. -$2,000
D. -$1,500
E. none of the above
E. none of the above
SELL OIL - want it to go down
start: 57,000
end: 55,500
profit of + $1,500
You use 10000 bushels a month but only enter 1 long contract at 370. If next month's spot
price is 400, what would your costs be without the future? With the future?
, A. $40,000; $37,000
B. $40,000; $38,500
C. $37,000; $40,000
D. $38,500; $40,000
E. None of the above
B. 40,000, 38,500
one contract is 5,000 bushels
w/out contract = 10,000 x 4.00 = 40,000
with 1 future = 10,000 x 4.00 = 40,000
5,000 x (4.00-3.70) = +1,500
costs = 40,000 - 1500 = 38,500
w/ 2 futures contracts = 10,000 x 3.70 = $37,000
You use 10000 bushels a month but only enter 1 long contract at 370. If next month's spot
price is 355, what would your costs be without the future? With the future?
A. $35,500; $36,250
B. $37,000; $36,250
C. $35,500; $37,000
Answers
benefits of futures and forwards
futures
- no counter party risk, standardized implies higher liquidity
forwards
- customized (date/amount)
costs of futures and forwards
futures
- may not be exactly what you need (set date or amount)
- pay broker commissions
forward
- pay banker bid-ask spreads
yesterday, you entered a futures contract (1000) barrels to buy oil at $62 per barrel.
Suppose the futures price closes today at $65. How much have you made/lost?
A. $3,000
B. $2,000
C. -$2,000
,D. -$3000
E. none of the above
A. made $3000
- started: $62 x 1000= 62,000
- End: $65 x 1000 = 65,000
yesterday, you entered a futures contract (1000) barrels to SELL oil at $57 per barrel.
Suppose the futures price closes today at $55.50. How much have you made/lost?
A. $2,000
B. $2,500
C. -$2,000
D. -$1,500
E. none of the above
E. none of the above
SELL OIL - want it to go down
start: 57,000
end: 55,500
profit of + $1,500
You use 10000 bushels a month but only enter 1 long contract at 370. If next month's spot
price is 400, what would your costs be without the future? With the future?
, A. $40,000; $37,000
B. $40,000; $38,500
C. $37,000; $40,000
D. $38,500; $40,000
E. None of the above
B. 40,000, 38,500
one contract is 5,000 bushels
w/out contract = 10,000 x 4.00 = 40,000
with 1 future = 10,000 x 4.00 = 40,000
5,000 x (4.00-3.70) = +1,500
costs = 40,000 - 1500 = 38,500
w/ 2 futures contracts = 10,000 x 3.70 = $37,000
You use 10000 bushels a month but only enter 1 long contract at 370. If next month's spot
price is 355, what would your costs be without the future? With the future?
A. $35,500; $36,250
B. $37,000; $36,250
C. $35,500; $37,000
