1. A trader buys a call option with a strike price of $30 for $3. Does the trader ever exercise the option and lose money on the trade? Explain

2. A trader sells a put option with a strike price of $40 for $5. What is the trader's maximum gain and maximum loss? How does your answer change if it is a call option?

3. Distinguish between the terms open interest and trading volume.

4.Suppose that you enter into a short futures contract to sell July silver for $17.20 per ounce. The size of the contract is 5,000 ounces. The initial margin is $4,000, and the maintenance margin is $3,000. What change in the futures price will lead to a margin call? What happens if you do not meet the margin call?

5. Show that, if the futures price of a commodity is greater than the spot price during the delivery period, then there is an arbitrage opportunity. Does an arbitrage opportunity exist if the futures price is less than the spot price? Explain your answer.

6. Explain why collateral requirements will increase in the OTC market as a result of new regulations introduced since the 2008 credit crisis.

7. The forward price on the Swiss franc for delivery in 45 days is quoted as 1.1000. The futures price for a contract that will be delivered in 45 days is 0.9000. Explain these two quotes. Which is more favorable for a trader wanting to sell Swiss francs?

8.A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months. The live-cattle futures contract traded by the CME Group is for the delivery of 40,000 pounds of cattle. How can the farmer use the contract for hedging? From the farmers viewpoint, what are the pros and cons of hedging?