Coursera | Financial Markets

Lesson #12 Quiz >> Financial Markets

Lesson #12 Quiz >> Financial Markets

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1. What is the effect of traders storing grain to wait for higher prices?

  • Most shortages could have been prevented if traders had not speculated on grain prices.
  • It is essential in preventing grain shortages.
  • Most grain ends up getting moldy in storage.
  • Traders are able to monopolize the market.

2. In commodities trading, what is the role of forwards and futures?

  • Warehouses buy from the farmer in forwards, and then hedge on futures.
  • Farmers and warehouses sell exclusively in futures.
  • Farmers and warehouses sell crops in both forwards and futures.
  • Farmers sell in forwards and warehouses sell in futures.

3. When an investor uses margin to buy or sell securities, how are the securities paid for?

  • A combination of an investor’s own funds and futures
  • On money borrowed from a broker only
  • On money borrowed from a broker whereby the broker may tell the investor at any time to sell securities or contribute money.
  • A combination of an investor’s own funds and money borrowed from a broker.

4. What is the primary purpose of purchasing futures if they are rarely delivered?

  • To protect against price fluctuations.
  • To allow a corporation to buy and sell commodities, which would be impossible without futures.
  • To negotiate the best price on a commodity with a farmer.
  • To purchase the industry standard of a commodity, such as those put out by the Chicago Board of Trade (CBOT)

5. What often happens to futures at the time of the crop for commodities with a specific well-defined harvest window?

  • They tend to be traded below the expected spot price at the contract’s maturity.
  • They tend to be traded above the expected spot price at the contract’s maturity.
  • Due to defaults, investors could lose a lot of money.
  • They tend to be traded exactly at the expected spot price at the contract’s maturity, making it difficult to profit as an investor.

6. How is it possible to have a future based on the S&P500?

  • There is a large fine on anyone who still holds the security on the final day.
  • Anyone still holding the security on the final day will receive a proportionate number of shares in an S&P500 index fund.
  • On the last day there is a final settlement of the difference between the futures price and the actual index.
  • On the last day, there is a final settlement of a combination of the other commodities on the futures market.

7. What is the fair value of a futures contract with a storage cost of 3%, an interest rate of 5%, and a spot price of $1000 over a 1 year time period?

  • $1080.00
  • $1800.00
  • $1081.50
  • $1000.00

8. How can you determine whether a future is in backwardation or contango?

  • If the price rises over time (has a positive derivative), it is backwardation, but if it falls (a negative derivative), it is contango.
  • If the price falls over time (has a negative derivative), it is backwardation, but if it rises (a positive derivative), it is contango.
  • If the price is rising at an increasingly fast rate (has a positive second derivative), it is backwardation, but if it is falling at an increasingly fast rate (has a negative second derivative), it is contango
  • If the price is falling at an increasingly fast rate (has a negative second derivative), it is backwardation, but if it is rising at an increasingly fast rate (has a positive second derivative), it is contango.

9. What is the Federal Funds Futures Market?

  • Futures contracts created by an exchange board which are settled at the end of each year for 100 minus the federal funds rate averaged over the month.
  • Futures contracts created by the government which are settled at the end of each month for 100 minus the federal funds rate averaged over the month.
  • Futures contracts created by the government which are settled at the end of each year for 100 minus the federal funds rate averaged over the month.
  • Futures contracts created by an exchange board which are settled at the end of each month for 100 minus the federal funds rate averaged over the month.

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