Chapter 9 & 10 Crunch time

Question 1

through hedging, producers and users may pass most of the risk to…

Answer 1

speculators

Question 2

represents the relationship between cash and futures prices

Answer 2

basis

Question 3

A strengthening basis is positive if one is…

Answer 3

long the commodity (producer)

Question 4

A weakening basis is positive if one is…

Answer 4

short the commodity (user)

Question 5

effective selling price =

Answer 5

Cash now + Profit on the hedge OR Cash now - loss on the hedge

Question 6

effective selling cost =

Answer 6

Cash now - Profit on the hedge OR Cash now + loss on the hedge

Question 7

used to hedge positions against systematic risk, uses a multiplier to convert values and are settled in cash

Answer 7

stock index futures

Question 8

What is the standard multiplier for:
S&P 500
E-mini contract

Answer 8

E-mini: 50, S&P 500: 250

Question 9

A standard S&P 500 contract can be offset with…

Answer 9

an equivalent amount of E-mini contracts.