1. If a short futures position is held by a hedger, a corresponding long futures position must be held by:

a. a speculator

b. a hedger

c. an arbitrageur

d. any of the above

2. Floating rate notes have a duration that:

a. is infinite

b. is equal to one plus the yield divided by the yield

c. is at least equal to the time between coupon payments

d. is at most equal to the time between coupon payments

3. Relative to the maturity of a bond, the duration is:

a. longer when interest rates exceed the coupon rate

b. longer when interest rates are less than the coupon rate

c. shorter when the bond does not pay coupon interest

d. shorter when the bond does pay coupon interest

4. An over-the-counter forward contract:

a. Is marked-to-market daily

b. Will be closed-out by the clearing house if a margin call is ignored

c. Is not subject to daily settlement

d. Rarely involves physical delivery

5. The low of one price is least likely to hold when:

a. Speculators are pessimistic about an interest rate increase

b. Speculators are optimistic about an interest rate decrease

c. Arbitrageurs are actively trading in a market

d. Arbitragers are prevented from trading in a market

6. Freda speculates by trading in one contract (10,000kg) of live cattle. It is now April 2015, and she believes that in May 2015 an outbreak of lamb flu will increase demand for beef, and cause live cattle futures prices to increase by 25%. The following live cattle futures contracts are available at the indicated price:

Delivery date Contract price

April 2015 350 c/kg

July 2015 355 c/kg

October 2015 360 c/kg

Clearly state what futures position she should take, how she can close this position in June 2015, and what profit she would realize if she expectation was exactly correct.