SERIES 3 TES questions with
comprehensive solutions
Which of the following issues a listed commodity option?
A)
Exchange clearinghouse
B)
Member firm of the option writer
C)
Investor who writes the option
D)
Exchange on which the option is purchased - correct answer ✔✔ A
Initial margin requirement for a CBOT soybean oil contract is $1,500. Maintenance margin is
$1,000. Your customer deposits $4,500 to go long 3 contracts. After your customer opens the
position, the market is limit up for three consecutive days. If the initial margin requirement
increases from $1,500 to $2,250 per contract, your customer
A)
must use $2,250 of the unrealized gain to meet the new margin requirement
B)
must deposit $2,250 to meet the new margin requirement
C)
must deposit $750 to meet the new margin requirement
D)
has enough unrealized gain and need not worry about the higher margin requirement - correct
answer ✔✔ a
,If a CPO currently operates 3 separate pools of funds, the CPO would be exempt from
registration as an investment adviser.
True
False - correct answer ✔✔ TRUE
The CPO is exempt from registration as an investment adviser if none of the assets he controls
qualifies as an investment company.
Reference: 7.3.1 in the License Exam Manual
On the Chicago Board of Trade, what is a call market?
A)
Sale of an option on a future
B)
Procedure whereby futures contract transactions are made outside the market
C)
Purchase of an option on a future
D)
Successive opening trades of futures contracts in various months for the same commodity -
correct answer ✔✔ D
"Call market" describes an orderly method to open trading where an exchange floor official
successively calls each different delivery month of the contract to open trading. Futures trades
generally must occur in the pit, and a call market has nothing to do with options. This may also
be called an opening rotation.
Reference: 6.1.1.6.5 in the License Exam Manual
A CPO with only one pool must disclose at least quarterly performance.
True
False - correct answer ✔✔ True
,True. A CPO must always disclose performance at least quarterly; however, more frequent
disclosure is allowable. If the pool has assets of more than $500,000 a monthly statement is
required.
Reference: 7.3 in the License Exam Manual
Open interest is the number of futures contracts
A)
sold minus the number bought that have not been liquidated
B)
bought or sold that have not been liquidated
C)
bought minus the number sold that have not been liquidated
D)
bought plus the number sold that have not been liquidated - correct answer ✔✔ D
The total number of futures contracts of a given commodity-that has not yet been offset-is
known as the open interest. Each open transaction has a buyer and a seller. To calculate open
interest, only one side of the contract is counted (although there are two parties involved, there
is only one contract).
Reference: 3.2.1.5.1 in the License Exam Manual
A T-bond Jul 96 put for 1.8 has how much time value when the underlying futures contract is
quoted at 95.20?
A)
$1,250
B)
$1,000
C)
$0
, D)
$750 - correct answer ✔✔ D
The 1 8/64 premium ($1,125) has time value of $750. The put has a strike price of 96, and the
futures contract is 95.20 (95 20/32nds). Thus, the put has an intrinsic value of (and is in-the-
money by) 12 (32nds) × $31.25 or $375. The premium is $1,125 minus $375 of intrinsic value,
which equals $750 of time value.
Reference: 5.4.1.2 in the License Exam Manual
A U.S. importer has sold forward German machine parts and has contracted with the German
manufacturer for payment in euros in three months. If he wants to hedge his risk, you
recommend
A)
sell euro calls
B)
buy euro puts
C)
buy euro futures
D)
short euro futures - correct answer ✔✔ The only choice listed that effectively protects the
importer is buying euro futures. The U.S. importer, having sold forward the parts, must pay the
manufacturer. The importer's risk is that the value of the euro will rise relative to the value of
the dollar, and must place a hedge that will benefit if a rise occurs.
Reference: 4.5.1.2 in the License Exam Manual
An AP of a FCM has been an NFA Registrant for 3 years. According to CFTC rules, her ethics
training requirement is
A)
determined by the FCM employing the associate
B)
comprehensive solutions
Which of the following issues a listed commodity option?
A)
Exchange clearinghouse
B)
Member firm of the option writer
C)
Investor who writes the option
D)
Exchange on which the option is purchased - correct answer ✔✔ A
Initial margin requirement for a CBOT soybean oil contract is $1,500. Maintenance margin is
$1,000. Your customer deposits $4,500 to go long 3 contracts. After your customer opens the
position, the market is limit up for three consecutive days. If the initial margin requirement
increases from $1,500 to $2,250 per contract, your customer
A)
must use $2,250 of the unrealized gain to meet the new margin requirement
B)
must deposit $2,250 to meet the new margin requirement
C)
must deposit $750 to meet the new margin requirement
D)
has enough unrealized gain and need not worry about the higher margin requirement - correct
answer ✔✔ a
,If a CPO currently operates 3 separate pools of funds, the CPO would be exempt from
registration as an investment adviser.
True
False - correct answer ✔✔ TRUE
The CPO is exempt from registration as an investment adviser if none of the assets he controls
qualifies as an investment company.
Reference: 7.3.1 in the License Exam Manual
On the Chicago Board of Trade, what is a call market?
A)
Sale of an option on a future
B)
Procedure whereby futures contract transactions are made outside the market
C)
Purchase of an option on a future
D)
Successive opening trades of futures contracts in various months for the same commodity -
correct answer ✔✔ D
"Call market" describes an orderly method to open trading where an exchange floor official
successively calls each different delivery month of the contract to open trading. Futures trades
generally must occur in the pit, and a call market has nothing to do with options. This may also
be called an opening rotation.
Reference: 6.1.1.6.5 in the License Exam Manual
A CPO with only one pool must disclose at least quarterly performance.
True
False - correct answer ✔✔ True
,True. A CPO must always disclose performance at least quarterly; however, more frequent
disclosure is allowable. If the pool has assets of more than $500,000 a monthly statement is
required.
Reference: 7.3 in the License Exam Manual
Open interest is the number of futures contracts
A)
sold minus the number bought that have not been liquidated
B)
bought or sold that have not been liquidated
C)
bought minus the number sold that have not been liquidated
D)
bought plus the number sold that have not been liquidated - correct answer ✔✔ D
The total number of futures contracts of a given commodity-that has not yet been offset-is
known as the open interest. Each open transaction has a buyer and a seller. To calculate open
interest, only one side of the contract is counted (although there are two parties involved, there
is only one contract).
Reference: 3.2.1.5.1 in the License Exam Manual
A T-bond Jul 96 put for 1.8 has how much time value when the underlying futures contract is
quoted at 95.20?
A)
$1,250
B)
$1,000
C)
$0
, D)
$750 - correct answer ✔✔ D
The 1 8/64 premium ($1,125) has time value of $750. The put has a strike price of 96, and the
futures contract is 95.20 (95 20/32nds). Thus, the put has an intrinsic value of (and is in-the-
money by) 12 (32nds) × $31.25 or $375. The premium is $1,125 minus $375 of intrinsic value,
which equals $750 of time value.
Reference: 5.4.1.2 in the License Exam Manual
A U.S. importer has sold forward German machine parts and has contracted with the German
manufacturer for payment in euros in three months. If he wants to hedge his risk, you
recommend
A)
sell euro calls
B)
buy euro puts
C)
buy euro futures
D)
short euro futures - correct answer ✔✔ The only choice listed that effectively protects the
importer is buying euro futures. The U.S. importer, having sold forward the parts, must pay the
manufacturer. The importer's risk is that the value of the euro will rise relative to the value of
the dollar, and must place a hedge that will benefit if a rise occurs.
Reference: 4.5.1.2 in the License Exam Manual
An AP of a FCM has been an NFA Registrant for 3 years. According to CFTC rules, her ethics
training requirement is
A)
determined by the FCM employing the associate
B)
