5. Which of the following is Correct? (A) Basis = (Spot Price Futures Price) (B) Basis = (Spot Price * Futures Price) (C) Basis = (Spot Price / Futures Price) (D) Basis = (Spot Price + Futures Price) Answer: Questions 1 continued next page 3 6. Which of the following is True? (A) Futures have high risk of counterparty default (B) Futures are subject to zero initial value (C) Futures are settled on a yearly basis (D) Futures cannot be closed out before maturity Answer: 1. Derivatives: (A) are traded in zero net supply markets (B) derive from underlying assets that can be tradeable or non-tradeable (C) provide synthetic ownership of the underlying assets (D) All of the above Answer: 2. Which of the following is being traded in exchange-traded derivatives markets? (A) Futures on S&P index (B) Forward on onions (C) Futures on onions (D) Forward on S&P index Answer: 3. Short Futures provides: (A) an option to Buy an asset at a certain time in the future for a certain price (B) an agreement to Sell an asset at a certain time in the future for a certain price (C) an agreement to Buy an asset at a certain time in the future for a certain price (D) an option to Sell an asset at a certain time in the future for a certain price Answer: 4. The pricing of Forward contracts should be based on: (A) market manipulation (B) no volatility (C) no arbitrage (D) no trading activities and no information