1.

Which of the following is not true a. For investment assets the difference between spot and forward/future prices reflects the assets cost of carry b. The cost of carry is the combination of storage costs, financing costs and income paid by an asset c. If the cost of carry for an investment asset is positive, the futures price has to be lower than the spot price or else arbitrage opportunities are available d. If the convenience yield for a consumption asset is larger than its cost of carry, the futures price of the asset has to be lower than the spot price otherwise arbitrage opportunities are available 2. Which of the following is true: a. If there is perfect positive correlation between the asset being hedged and the futures contract used to hedge then the hedge ratio is 1 b. If there is perfect negative correlation between the asset being hedged and the futures contract used to hedge then the hedge ratio is -1 c. If there is no basis risk a perfect hedge is impossible d. Maturity mismatch alone can create basis risk 3. If the convenience yield is positive and arbitrage opportunities have disappeared, then: a. The spot price has to be higher than the futures price b. The spot price has to be below the futures price c. The spot price has to equal the future price d. The spot price can be either below, equal to or above the futures price depending on the risk free rate, the asset yield and on storage costs 4. An upward sloping forward curve for an investment asset implies a a. zero cost of carry b. negative cost of carry c. positive cost of carry d. negative convenience yield 5. Suppose that you have opened a futures position and posted funds with a broker in a margin account. The minimum level to which a margin accounts value may fall before requiring additional margin is known as the: a. daily margin b. initial margin c. maintenance margin d. profit margin e. variation margin

Question 6 is based on the following data for gold and platinum futures (where prices are in dollars per troy ounce and margin account balances do not earn interest): Trading Date June Gold Futures April Platinum Futures (100 troy oz. per contract) (50 troy oz. per contract) Jan 20 1,594.50 1,874.50 Jan 21 1,592.40 1,878.50 Jan 22 1,597.70 1,883.10 6. Suppose that you go short three contracts of April platinum futures on January 20 and long two contracts of June gold on January 21. Then the value of your portfolio at the closing of January 22 has changed by: a. $230 b. $100 c. +$100 d. +$730 e. None of these answers are correct. 7. Let the spot price of gold today be $1,500 per ounce. Jewellery maker Jewelrygold Inc. sets up a buying hedge by going long gold futures. The basis is $50 today and $5 on the day the company lifts the hedge by buying gold in the spot market and selling the futures. The companys effective buying price for gold is: a. $1,505 b. $1,545 c. $1,550 d. $1,555 e. None of these answers are correct. 8. Suppose that the variance of quarterly changes in the spot prices of a commodity is 0.49, the variance of quarterly changes in a futures price on the commodity is 0.81, and the coefficient of correlation between the two changes is 0.6. The optimal hedge ratio for the contract is: a. 0.10 b. 0.4667 c. 0.5444 d. 0.9 e. None of these answers are correct. 9. Suppose that todays price of gold in the spot market is $1,510 per ounce. The price of a zero-coupon bond maturing in six months is $0.98. Then the six- month forward price for gold is: a. $1,515.08 b. $1,531.61 c. $1,540.82 d. $1,550.69 e. None of these answers are correct.

10. Todays spot price of gold is $1,600 per ounce. The continuously compounded interest rate is 5 percent per year. The quoted six- month forward price for gold is $1,650. The arbitrage profit that you can make today by trading one forward contract and other securities is: a. $5.08 b. $9.26 c. $8.07 d. $9.38 e. None of these answers are correct.