Final TCQT

Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Suppose the futures price closes today at $1.46. How much have you made/lost?

• Depends on your margin balance.

• You have made $2,500.00.

• You have lost $2,500.00.

• You have neither made nor lost money, yet.

Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Suppose the futures price closes today at $1.46. How much have you made/lost?

• Depends on your margin balance.

• You have made $2,500.00.

• You have lost $2,500.00.

• You have neither made nor lost money, yet.

In reference to the futures market, a "speculator"

• attempts to profit from a change in the futures price

• wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position in the futures contract

• stands ready to buy or sell contracts in unlimited quantity

Comparing "forward" and "futures" exchange contracts, we can say that

• they are both "marked-to-market" daily

• their major difference is in the way the underlying asset is priced for future purchase or sale: futures settle daily and forwards settle at maturity.

• a futures contract is negotiated by open outcry between floor brokers or traders and is traded on organized exchanges, while forward contract is tailor-made by an international bank for its clients and is traded OTC.

Comparing "forward" and "futures" exchange contracts, we can say that

• delivery of the underlying asset is seldom made in futures contracts.

• delivery of the underlying asset is usually made in forward contracts.

• delivery of the underlying asset is seldom made in either contract—they are typically cash settled at maturity.

What paradigm is used to define the futures price?

• IRP

• Hedge Ratio

• Black Scholes

• Risk Neutral Valuation

Suppose the futures price is below the price predicted by IRP. What steps would assure an arbitrage profit?

• Go short in the spot market, go long in the futures contract.

• Go long in the spot market, go short in the futures contract.

• Go short in the spot market, go short in the futures contract.

• Go long in the spot market, go long in the futures contract.

If a currency futures contract (direct quote) is priced below the price implied by Interest Rate Parity (IRP), arbitrageurs could take advantage of the mispricing by simultaneously

• going short in the futures contract, borrowing in the domestic currency, and going long in the foreign currency in the spot market.

• going short in the futures contract, lending in the domestic currency, and going long in the foreign currency in the spot market

• going long in the futures contract, borrowing in the domestic currency, and going short in the foreign currency in the spot market

• going long in the futures contract, borrowing in the foreign currency, and going long in the domestic currency, investing the proceeds at the local rate of interest.

Open interest in currency futures contracts

• tends to be greatest for the near-term contracts

• tends to be greatest for the longer-term contracts.

• typically decreases with the term to maturity of most futures contracts.

The "open interest" shown in currency futures quotations is

• the total number of people indicating interest in buying the contracts in the near future.

• the total number of people indicating interest in selling the contracts in the near future.

• the total number of people indicating interest in buying or selling the contracts in the near future.

• the total number of long or short contracts outstanding for the particular delivery month.