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29 Mar 2019

The information below describes one day’s trading in Futures contracts:

Trade 1

 A Long B Short 7 Contracts
Trade 2 C Long B Short 5 Contracts
Trade 3 C Long A Short 10 Contracts
Trade 4 B Long C Short 12 Contracts

A). What is the open interest following each of the four trades?

B). What is the total volume of trade for the day?

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Jarrod Robel
Jarrod RobelLv2
30 Mar 2019

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Related questions

1. Futures Contracts Describe the general charac- teristics of a futures contract. How does a clearinghouse facilitate the trading of financial futures contracts?

2. Futures Pricing How does the price of a financial futures contract change as the market price of the security it represents changes? Why?

3. Hedging with Futures Explain why some futures contracts may be more suitable than others for hedging exposure to interest rate risk.

4. Treasury Bond Futures Will speculators buy or sell Treasury bond futures contracts if they expect interest rates to increase? Explain

7. Hedging with Futures Assume a financial institution has more rate-sensitive assets than rate-sensitive liabilities. Would it be more likely to be adversely affected by an increase or a decrease in interest rates? Should it purchase or sell interest rate futures contracts in order to hedge its exposure?

8. Hedging with Futures Assume a financial institution has more rate-sensitive liabilities than rate- sensitive assets. Would it be more likely to be adversely affected by an increase or a decrease in interest rates.

Should it purchase or sell interest rate futures contracts in order to hedge its exposure?

9. Hedging Decision Why do some financial insti- tutions remain exposed to interest rate risk, even when they believe that the use of interest rate futures could reduce their exposure?

10. Long versus Short Hedge Explain the difference between a long hedge and a short hedge used by financial institutions. When is a long hedge more appropriate than a short hedge?

11. Impact of Futures Hedge Explain how the probability distribution of a financial institution’s returns is affected when it uses interest rate futures to hedge. What does this imply about its risk?

12. Cross-Hedging Describe the act of cross-hedging. What determines the effectiveness of a cross-hedge?

1. Which of the followings reduce(s) credit risk in futures contracts?

(1) Standardization of futures contracts

(2) Trading in exchanges

(3) Marking to market

A. Only (1)

B. Only (2)

C. Only (3)

D. Only (1) and (3)

E. All of (1), (2) and (3)

2. Let’s distinguish the meanings of transaction types of Buy, Sell, Short and Cover. If you want to speculate on price movement and expect the price of a certain option is expected to fall, then which transaction do you have to do?

A. buy

B. sell

C. short

D. cover

3. What does “contract size” mean in derivatives trades?

A. Number of contracts

B. Dollar value of one contract

C. Dollar value of the total contracts

D. Number of unit that denominates the asset per one contract

4. Suppose you are a speculator and expecting the price of soybeans to fall in three months. (You don’t have soybeans) Which transaction do you have to make in the futures market?

A. Buy

B. Sell

C. Short

D. Cover

5. Suppose you are a fund manager and worrying about risk arising from the uncertain performance of the market as a whole. In order to reduce risk, which position of index futures do you have to take?

A. Buy

B. Sell

C. Short

D. Cover

6. Which of the following conditions does NOT cause the basis risk in hedge using futures?

a. Length of time to hedge is shorter than the length of time for futures to expire.

b. Length of time to hedge is longer than the length of time for futures to expire.

c. The underlying asset of futures is not the same as the asset to be hedged

d. The amount to be hedged is different from the amount of futures contracts

Problem 10-5 (LG 10-2) Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 119 − 100. Dudley Savings thinks interest rates will go down over the period of investment. The face value of the bond underlying the futures contract is $100,000. a. Should the bank go long or short on the futures contracts? Long Short b. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts increases to 119 − 210. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Net profit $ c. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts decreases to 118 − 270. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Net profit $

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