Question 1

Which one of the following statements regarding "basis" is true? I) The basis is the difference between the futures price and the spot price.
II) The basis risk is borne by the hedger.
III) A short hedger suffers losses when the basis decreases.
IV) The basis increases when the futures price increases by more than the spot price.

Accepted Answer

A decrease in the basis will benefit the short hedger.

Question 2

On January 1, the listed spot and futures prices of a Treasury bond were 95.4 and 95.6. You sold $100,000 par value Treasury bonds and purchased one Treasury bond futures contract. One month later, the listed spot price and futures prices were 95 and 94.4, respectively. If you were to liquidate your position, your profits would be a

Accepted Answer

On bonds: $95,125 − $95,000 = $125; On futures: $94,125.00 − $95,187.50 = −$1,062.50; Net profits: $125 − $1,062.50; = −$937.50.

Question 3

You sold one oil future contract at $70 per barrel. What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

Accepted Answer

$70.00 − $73.12 = −$3.12 × 1,000 = −$3,120.

Question 4

If you determine that the DAX-30 Index futures is underpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

Accepted Answer

If you think one asset is overpriced relative to another, you sell the overpriced asset and buy the other one.

Question 5

If you determine that the DAX-30 Index futures is overpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

Accepted Answer

If you think one asset is overpriced relative to another, you sell the overpriced asset and buy the other one.

Question 6

You purchased one oil future contract at $70 per barrel. What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

Accepted Answer

$73.12 − $70.00 = $3.12 × 1,000 = $3,120.

Quiz 22: Futures Markets

You sold one oil future contract at $70 per barrel. What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

If you determine that the DAX-30 Index futures is underpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

If you determine that the DAX-30 Index futures is overpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

You purchased one oil future contract at $70 per barrel. What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.