Question 11pts

On the floor of a futures exchange one futures contract is traded, in which the long party is initiating a new position while the short party is closing out an existing position. What is the resultant change in the open interest?

(a) No change

(b) Decrease by one

(c) Increase by one

(d) Increase by two

Flag this QuestionQuestion 21pts

A farmer in the Midwest is planting corn and expects to sell his product in October. How should he hedge the corn price risk?

(a) A long hedge: long the October corn futures contract

(b) A long hedge: long the November corn futures contract

(c) A short hedge: short the October corn futures contract

(d) A short hedge: short the November corn futures contract

Flag this QuestionQuestion 31pts

On March 1 the price of oil is $60 and the July futures price is $59. On June 1 the price of oil is $64 and the July futures price is $63.20. A company entered into a futures contracts on March 1 to hedge the purchase of oil on June 1. It closed out its position on June 1. After taking account of the cost of hedging, what is the effective price paid by the company for the oil? Please do not include any symbols other than the decimal point, such as the $ and % signs, or any text in your answer.

Flag this QuestionQuestion 41pts

On March 1 the price of gold is $1,295 and the December futures price is $1,315. On November 1 the price of gold is $1280 and the December futures price is $1285. A gold producer entered into a December futures contracts on March 1 to hedge the sale of gold on November 1. It closed out its position on November 1. After taking account of the cost of hedging, what is the effective price received by the company for the gold?

Flag this QuestionQuestion 51pts

A company uses a long hedge to hedge the price risk of an expected purchase in three months. If the basis in three months turns out to be higher than expected, how does it affect the effective price of the purchase for the company after taking into account the loss/gain from the hedge?

(a) It increases the effective price of the purchase for the company.

(b) It decreases the effective price of the purchase for the company.

(c) It has no effect on the effective price of the purchase.

(d) Its effect on the effective price of the purchase can be eigher positive or negative.

Flag this QuestionQuestion 61pts

Suppose that the standard deviation of monthly changes in the price of commodity A is $2. The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $3. The correlation between the futures price and the commodity price is 0.9. What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

Note: write your answer in decimals. For example, in the format of 0.5.

Flag this QuestionQuestion 71pts

A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on the S&P index is 2149. Futures contracts on $250 times the index can be traded. How many futures contracts does the company need to go long or short to reduce the beta to 0.9?

Note: use a positive number to indicate a long position, and a negative number to indicate a short position.

Flag this QuestionQuestion 81pts

A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on the S&P index is 2149. Futures contracts on $250 times the index can be traded. How many futures contracts does the company need to go long or short to increase the beta to 1.8?

Note: use a positive number to indicate a long position, and a negative number to indicate a short position.

Flag this QuestionQuestion 91pts

What rate of interest with continuous compounding is equivalent to 15% per annum with monthly compounding?

Please do not include any symbols other than the decimal point, such as the $ and % signs, or any text in your answer. If your answer is 10%, write 0.10.

Flag this QuestionQuestion 101pts

An interest rate is 15% per annum with continuous compounding. What is the equivalent rate with annual compounding?

Please do not include any symbols other than the decimal point, such as the $ and % signs, or any text in your answer. If your answer is 10%, write 0.10.