Mock exam PFI
Question 1. A company enters into a short futures contract to sell 50.000 units of a commodity for 70
cents per unit. The initial margin is $4.000 and the maintenance margin is $3.000. What is the futures
price per unit above which there will be a margin call?
a) 74 cents
b) 78 cents
c) 72 cents
d) 76 cents
C: the company receives a margin call when the loss is 1000 or more. Since it is a short position: (0.7-
x)*50.000 < -1000 x=0.72
Question 2. You sell 1 December futures contract when the futures price is $1010 per unit. Each
contract is on 100 units and the initial margin per contract is $2000. The maintenance margin per
contract is $1500. During the next day the futures price rises to $1012 per unit. What is the balance
of your margin account at the end of the day?
a) $1800
b) $2200
c) $3700
d) $3300
A: (1010-1012)*100 = -200 2000-200= 1800
Question 3. Margin account have the effect of:
a) Reducing systematic risk due to collapse of futures markets
b) Reducing risk of one party regretting the deal and backing out
c) Ensuring funds available to pay traders when they make a profit
d) All of the above
D
Question 4. A speculator takes a long position in a futures contract on a commodity on Nov 1. 2012
to hedge an exposure on March 1, 2013. The initial futures price is $60. On Dec 31 2012 it is $61. On
Dec 31, 2013 it is $64. The contract is closed out on March 1, 2013. What gain is recognized in the
accounting year January 1 to December 31 2013? Each contract is on 1000 units of the commodity.
a) $4000
b) $1000
c) $0
d) $3000
, Mock exam PFI
D: (64-61)*1000 = 3000. Note that profits of futures contract are settled daily.
Question 5. Suppose that the standard deviation of monthly changes in the price of commodity A is
$2. The standard deviation of monthly changes in futures price for a contract on commodity B is $3.
The correlation between the futures and commodity price is 0.9. What hedge ratio should be used
when hedging a one month exposure to the price of commodity A?
A) 0.90
B) 1.45
C) 0.67
D) 0.60
D: 0.9*(2/3) = 0.6
Question 6. A company has $36mil portfolio with a beta of 1.2. The futures price for a contract on an
index is 900. Futures contracts on $250 times the index can be traded. What trade is necessary to
reduce beta to 0.9?
a) Long 48
b) Short 192
c) Short 48
d) Long 192
C. (0.9-1.2)*36.000/(250*900)=-48
Question 7. Which of the following is true?
a) The optimal hedge ratio is the slope of the best fit line when the change in the spot price is
regressed against the change in the futures price.
b) The optimal hedge ratio is the slope of the best fit line when the change in the spot price is
regressed against the futures price.
c) The optimal hedge ratio is the slope of the best fit line when the futures price is regressed
against the spot price
d) The optimal hedge ratio is the slope of the best fit line when the futures price is regressed
against the change in the spot price
A
Question 8. A company due to pay a certain amount of foreign currency in the future decides to
hedge with futures contacts. Which of the following best describes the advantage of hedging?
a) It caps the exchange rate that will be paid
b) It leads to a better exchange rate being paid
c) It leads to a more predictable exchange rate being paid
d) It provides a floor for the exchange rate that will be paid
C
Question 1. A company enters into a short futures contract to sell 50.000 units of a commodity for 70
cents per unit. The initial margin is $4.000 and the maintenance margin is $3.000. What is the futures
price per unit above which there will be a margin call?
a) 74 cents
b) 78 cents
c) 72 cents
d) 76 cents
C: the company receives a margin call when the loss is 1000 or more. Since it is a short position: (0.7-
x)*50.000 < -1000 x=0.72
Question 2. You sell 1 December futures contract when the futures price is $1010 per unit. Each
contract is on 100 units and the initial margin per contract is $2000. The maintenance margin per
contract is $1500. During the next day the futures price rises to $1012 per unit. What is the balance
of your margin account at the end of the day?
a) $1800
b) $2200
c) $3700
d) $3300
A: (1010-1012)*100 = -200 2000-200= 1800
Question 3. Margin account have the effect of:
a) Reducing systematic risk due to collapse of futures markets
b) Reducing risk of one party regretting the deal and backing out
c) Ensuring funds available to pay traders when they make a profit
d) All of the above
D
Question 4. A speculator takes a long position in a futures contract on a commodity on Nov 1. 2012
to hedge an exposure on March 1, 2013. The initial futures price is $60. On Dec 31 2012 it is $61. On
Dec 31, 2013 it is $64. The contract is closed out on March 1, 2013. What gain is recognized in the
accounting year January 1 to December 31 2013? Each contract is on 1000 units of the commodity.
a) $4000
b) $1000
c) $0
d) $3000
, Mock exam PFI
D: (64-61)*1000 = 3000. Note that profits of futures contract are settled daily.
Question 5. Suppose that the standard deviation of monthly changes in the price of commodity A is
$2. The standard deviation of monthly changes in futures price for a contract on commodity B is $3.
The correlation between the futures and commodity price is 0.9. What hedge ratio should be used
when hedging a one month exposure to the price of commodity A?
A) 0.90
B) 1.45
C) 0.67
D) 0.60
D: 0.9*(2/3) = 0.6
Question 6. A company has $36mil portfolio with a beta of 1.2. The futures price for a contract on an
index is 900. Futures contracts on $250 times the index can be traded. What trade is necessary to
reduce beta to 0.9?
a) Long 48
b) Short 192
c) Short 48
d) Long 192
C. (0.9-1.2)*36.000/(250*900)=-48
Question 7. Which of the following is true?
a) The optimal hedge ratio is the slope of the best fit line when the change in the spot price is
regressed against the change in the futures price.
b) The optimal hedge ratio is the slope of the best fit line when the change in the spot price is
regressed against the futures price.
c) The optimal hedge ratio is the slope of the best fit line when the futures price is regressed
against the spot price
d) The optimal hedge ratio is the slope of the best fit line when the futures price is regressed
against the change in the spot price
A
Question 8. A company due to pay a certain amount of foreign currency in the future decides to
hedge with futures contacts. Which of the following best describes the advantage of hedging?
a) It caps the exchange rate that will be paid
b) It leads to a better exchange rate being paid
c) It leads to a more predictable exchange rate being paid
d) It provides a floor for the exchange rate that will be paid
C
