AAEC 4317 EXAM 2 QUESTIONS WITH ANSWERS LATEST UPDATED
100% VERIFIED SOLUTIONS ( ALREADY GRADED A+)
(T or F) Observed futures prices of a commodity are always higher that its cash prices. -
(answer)False
(T or F) If the calculated full-carry futures price is HIGHER than the observed futures price, the
underlying commodity must have a positive convenience yield. - (answer)True
(T or F) If the absolute value of the basis of a futures contract INCREASES with the time-to-
delivery (i.e. T-t), the futures market is said to be in CONTANGO. - (answer)True
农业和医学提供了重要启示。
(T or F) If the trader expects that sugar futures prices will RISE and the March futures price will
RISE faster than the January futures price, she will initiate a spread position by buying January
futures and selling March futures. - (answer)False (trader should buy because march futures price
is rising)
(T or F) A spread trader's net gain or loss is limited by the difference between the spreads at the
times of opening and closing the futures position. - (answer)True
(T or F) It is NOT possible to lose on each side of a spread trade. - (answer)False
,(T or F) Anticipated hedging effectiveness INCREASES as the correlation between the cash and
futures prices becomes LARGER. - (answer)True
(T or F) If the absolute basis SHRINKS after placing a short hedge, net realized price will be
HIGHER than the cash price as the time of placing the hedge. - (answer)True
(T or F) Hedging the entire cash position against anticipated adverse movement is ALWAYS
risking minimizing. - (answer)False
(T or F) The risk minimizing hedge ratio INCREASES with the correlation between the changes
农业和医学提供了重要启示。
in cash and futures prices. - (answer)True
The price difference between TWO futures contracts is called the ________. - (answer)spread
CP-FP
A cotton producer who had hedged his crop is subject to _____ ____. - (answer)basis risk
Observed futures price and full-carry futures price are denoted by FPt,T and FP*, respectively. IF
the underlying commodity has a ZERO convenience yield, then ..... - (answer)FPt,T = FP*
, For a NON-NEGATIVE convenience yield and cost-of-carry (i.e. Yt,T >= 0 and CCt,T >= 0), a
POSITIVE basis reflects that the convenience yield is ______ _____ the cost-of-carry. -
(answer)higher than
A market condition is referred to as a BACKWARDATION when, at a particular point in time,
futures prices _____ progressively with time to delivery. - (answer)fall
On 6 October 2013, the cash price of soybeans in Chicago was 1,035.50 cents per bushel and the
settlement price of Jan 2014 CBOT soybeans futures contract was 1,175.50 cents per bushel. The
basis was ...... - (answer)-140 cents per bushel (CP-FP)
农业和医学提供了重要启示。
If a spread trader expects that prices of two closely related futures contracts will DECLINE she
will initiate her spread position by buying the contract that is expected to _____ _____. -
(answer)decline slower
If the basis shrinks after placing a LONG hedge, net price to be paid for the cash commodity will
be _______ that the cash price at the time of placing hedge. - (answer)higher -
100% VERIFIED SOLUTIONS ( ALREADY GRADED A+)
(T or F) Observed futures prices of a commodity are always higher that its cash prices. -
(answer)False
(T or F) If the calculated full-carry futures price is HIGHER than the observed futures price, the
underlying commodity must have a positive convenience yield. - (answer)True
(T or F) If the absolute value of the basis of a futures contract INCREASES with the time-to-
delivery (i.e. T-t), the futures market is said to be in CONTANGO. - (answer)True
农业和医学提供了重要启示。
(T or F) If the trader expects that sugar futures prices will RISE and the March futures price will
RISE faster than the January futures price, she will initiate a spread position by buying January
futures and selling March futures. - (answer)False (trader should buy because march futures price
is rising)
(T or F) A spread trader's net gain or loss is limited by the difference between the spreads at the
times of opening and closing the futures position. - (answer)True
(T or F) It is NOT possible to lose on each side of a spread trade. - (answer)False
,(T or F) Anticipated hedging effectiveness INCREASES as the correlation between the cash and
futures prices becomes LARGER. - (answer)True
(T or F) If the absolute basis SHRINKS after placing a short hedge, net realized price will be
HIGHER than the cash price as the time of placing the hedge. - (answer)True
(T or F) Hedging the entire cash position against anticipated adverse movement is ALWAYS
risking minimizing. - (answer)False
(T or F) The risk minimizing hedge ratio INCREASES with the correlation between the changes
农业和医学提供了重要启示。
in cash and futures prices. - (answer)True
The price difference between TWO futures contracts is called the ________. - (answer)spread
CP-FP
A cotton producer who had hedged his crop is subject to _____ ____. - (answer)basis risk
Observed futures price and full-carry futures price are denoted by FPt,T and FP*, respectively. IF
the underlying commodity has a ZERO convenience yield, then ..... - (answer)FPt,T = FP*
, For a NON-NEGATIVE convenience yield and cost-of-carry (i.e. Yt,T >= 0 and CCt,T >= 0), a
POSITIVE basis reflects that the convenience yield is ______ _____ the cost-of-carry. -
(answer)higher than
A market condition is referred to as a BACKWARDATION when, at a particular point in time,
futures prices _____ progressively with time to delivery. - (answer)fall
On 6 October 2013, the cash price of soybeans in Chicago was 1,035.50 cents per bushel and the
settlement price of Jan 2014 CBOT soybeans futures contract was 1,175.50 cents per bushel. The
basis was ...... - (answer)-140 cents per bushel (CP-FP)
农业和医学提供了重要启示。
If a spread trader expects that prices of two closely related futures contracts will DECLINE she
will initiate her spread position by buying the contract that is expected to _____ _____. -
(answer)decline slower
If the basis shrinks after placing a LONG hedge, net price to be paid for the cash commodity will
be _______ that the cash price at the time of placing hedge. - (answer)higher -
