8. Suppose it is currently December. TheJanuary futures price is $50 and theMarch futures price is $52. What does the spread of $2 represent? (Points : 3.84)

the cost of carry fromDecember to January the expected risk premium fromDecember to March the cost of carry fromJanuary to March the expected risk premium fromJanuary to March none of the above

Question 9. 9. Margin in a futures transaction differs from margin in a stock transaction because (Points : 3.84)

stock transactions are much smaller delivery occurs immediately in a stock transaction no money is borrowed in a futures transaction futures are much more volatile none of the above

Question 10. 10. Which of the following correctly orders the process of daily settlement? (Points : 3.84)

clearinghouse officials establish a settlement price; each account is marked to market; accounts of those holding long/short positions are credited/debited appropriately; differences between todays settlement price and the previous days settlement price are determined clearinghouse officials establish a settlement price; each account is marked to market; differences between todays settlement price and the previous days settlement price are determined; accounts of those holding long/short positions are credited/debited appropriately differences between todays settlement price and the previous days settlement price are determined; accounts are marked to market; clearinghouse officials establish a settlement price; accounts of those holding long/short positions are credited/debited appropriately clearinghouse officials establish a settlement price; differences between todays settlement price and the previous days settlement price are determined; accounts of those holding long/short positions are credited/debited appropriately; each account is marked to market differences between todays settlement price and the previous days settlement price are determined; accounts are marked to market; clearinghouse officials establish a settlement price; accounts of those holding long/short positions are credited/debited appropriately

Question 11. 11. Why is the initial value of a futures contract zero? (Points : 3.84)

the futures is immediately marked-to-market you do not pay anything for it the basis will converge to zero the expected profit is zero because the futures price and spot price will be the same at expiration

Question 12. 12. You are trying to see if there is an arbitrage opportunity. Current US interest rate is 4%. The spot rate for US/EUR is2.5 while the forward rate for a year is 2. If the current interest rate in Germany is 30%. What should be done? (Points : 3.84)

Borrow in US and convert money to Euros, invest in Germany and after a year convert back to US dollars. Borrow in Germany and convert to US dollars at spot rate, invest in US and after a year convert back to Euros at forward rate BorrowEuros in Germany and invest in Germany, wait for a year and then convert to dollars using the forward rate. Borrow dollars in US, invest in US, wait for a year and convert to Euros at Forward rate and invest in Germany There is no arbitrage with these numbers, so you must invest in your native nation

Question 13. 13. A market in which the price doesn't equal the intrinsicvalue (Points : 3.84)

has a risk-free component willnot be profitable is normal is inefficient all of the above