Practice Test 5 Flashcards
1
Q
A bona fide speculator may exceed position limits if approved by the CFTC.
a. True
b. False
A
b. False
A bona fide hedger may exceed position limits. Speculators may not exceed position limits.
2
Q
The authority to regulate margin on futures contracts is exercised by the:
a. CFTC
b. Exchanges
c. NFA
d. Futures commission merchant
A
b. Exchanges
Exchanges set margin requirements on futures contracts.
3
Q
Fundamental analysis is concerned with supply factors while technical analysis is concerned with economic factors.
a. True
b. False
A
b. False
Fundamental analysis is concerned with both supply and economic factors. Technical analysis is concerned with charting price changes.
4
Q
A bank intends to sell mortgages to investors in four months. To hedge, the bank should:
a. Sell GNMA certificates
b. Buy GNMA futures
c. Sell GNMA futures
d. Buy GNMA futures and sell GNMA certificates
A
c. Sell GNMA futures
A mortgage lender faces price risk if interest rates rise and a borrower’s loan terms have been set before the loan has been sold to investors. The bank would hedge by selling GNMA futures.
5
Q
The NFA’s Compliance Director needs court approval to subpoena documents from an NFA member.
a. True
b. False
A
b. False
The NFA’s Compliance Director can subpoena documents without court approval.
6
Q
Transportation is a factor in the carrying charge.
a. True
b. False
A
b. False
The carrying charge is made up of interest, storage and insurance. Transportation is not a factor in the carrying charge.
7
Q
A MIT order to sell is started when the market trades at or below the entered price.
a. True
b. False
A
b. False
A market if touched (MIT) order is started when the futures contract trades, or is bid, at or above the order price.
8
Q
The Environmental Protection Agency approves a stricter gasoline volatility standard. This causes the unleaded gasoline futures contract on the New York Mercantile Exchange to invert. The June-July spread is trading $.0240 bid/offered at $.0245. A customer enters an order to buy 5 July-sell 5 June spread positions at the market. The order is filled at $.0240. When the customer liquidates his spreads, the spread is still inverted and trading $.0110 bid/offered at $.0115. The spreads are liquidated at $.0115. The unleaded gasoline futures contract size is 42,000 gallons. The profit or loss as a result of this trade is:
a. $525 profit
b. $525 loss
c. $2,625 profit
d. $2,625 loss
A
c. $2,625 profit
The market is inverted. The price of June is .0240 over the price of July.
June
Sell .0240
Buy .0115
Profit .0125
Contract Size x 42,000 gallons
Profit $525 per contract
# of Contracts x 5
Profit $2,625
July
Buy .0000
Sell .0000
9
Q
A CPO may not commingle funds of a pool that he operates with funds of any other pool or with his own funds.
a. True
b. False
A
a. True
A CPO may not commingle funds of a pool that he operates with funds of any other pool or with his own funds.
10
Q
A NFA member who is under review by the Business Conduct Committee is subject to a trading restriction until the matter is resolved.
a. True
b. False
A
b. False
A NFA member under review by the Business Conduct Committee is not subject to a trading restriction until the matter is resolved.
11
Q
To hedge a short GNMA cash position against a decrease in interest rates one should:
a. Buy GNMA futures
b. Sell GNMA futures
c. Buy GNMA futures and sell cash GNMAs
d. Sell GNMA futures and buy cash GNMAs
A
a. Buy GNMA futures
A person who is short GNMAs and satisfied with the current yield on GNMAs, is concerned that interest rates will decline prior to his funds becoming available to purchase GNMAs. To hedge this short cash position, he should buy GNMA futures.
12
Q
When a call option is exercised, the writer receives a:
a. Long futures position
b. Short futures position
c. Notice to take delivery of the commodity
d. Notice to make delivery of the commodity
A
b. Short futures position
When a call option is exercised by the buyer, the writer (seller) is assigned a short futures position at the strike price.
13
Q
An oil company that refines crude oil and buys it through cash forward contracts would need to hedge against declining prices of petroleum products. The most effective hedge would be to:
a. Buy crude oil futures
b. Sell crude oil futures
c. Buy heating oil futures
d. Sell heating oil futures
A
d. Sell heating oil futures
The oil company has locked in the price of crude oil through cash forward contracts and needs to protect against declining prices of petroleum products. The most effective hedge is to sell heating oil futures.
14
Q
A strengthening basis would occur when the cash price remains unchanged and the futures price falls.
a. True
b. False
A
a. True
A strengthening basis would occur when the basis becomes more positive. If the cash price remains unchanged and the futures price falls, the basis becomes more positive.
15
Q
When a NFA member is under investigation by the compliance staff of the NFA, he may resign from membership.
a. True
b. False
A
b. False
A NFA member cannot resign from membership if he has been charged with a violation or is under investigation by the NFA.
16
Q
October sugar is trading 13.87 cents. The October 14 cent sugar call is trading 1.50 cents. This call has a delta of 40% (.4). Sugar rallies .50 cents on news of foreign buying of sugar contracts. The sugar futures contract is 112,000 pounds. What is the 14 cent call worth after the underlying futures contract has advanced .50 cents?
a. $1,456
b. $1,904
c. $14,056
d. $19,040
A
b. $1,904
The sugar futures contract changed in value by .50 cents. The delta of the call option is 40%. Therefore, the option premium will increase by .20 cents (.50 cents x .40). The original option premium (1.50 cents) plus the change in the option premium (.20 cents) equals the new option premium (1.70 cents). 1.70 cents x 112,000 lbs. (contract size) equals $1,904.
17
Q
A firm that is long the basis establishes a hedge using 5 sugar futures contracts. When the hedge is placed, the firm’s basis is .30 cents under. When the hedge is lifted, the basis is .24 cents under. The futures contract size is 112,000 pounds. The change in basis means the company will have a:
a. $33,600.00 gain
b. $33,600.00 loss
c. $336.00 gain
d. $336.00 loss
A
c. $336.00 gain
A firm that is long the basis owns the cash product and has placed a selling hedge in the futures market. Since the basis is under (cash is lower than futures), the futures price is higher (over) the cash price. The question tells us that the hedge is established when futures are .30 cents over cash and lifted when futures are .24 cents over cash.
Cash | Futures
.00 SOLD .30 cents
.00 BUY .24 cents
.00 GAIN .06 cents
So, futures are sold for .30 cents, and then purchased at .24 cents. The result of the hedge is .06 cents profit.
.06 cents (or .0006) x 112,000 lbs. = $67.20 per contract x 5 contracts = $336.00 gain
18
Q
Margin for soybean meal futures is $10 per ton. Soybean meal trades on the Chicago Board of Trade. The price quoted is per ton. A customer places a market order to sell 9 August soybean meal futures contracts. The market is trading $218.70 bid/offered at $218.75. The order is filled at $218.70. When the customer is ready to liquidate his position, the effects of the previous year’s drought and an increase in current demand has caused the price of soybean meal to rally. The position is liquidated at $221.40. Round-turn commissions are $70. The soybean meal futures contract is 100 tons. The resulting percentage of profit or loss, including commissions, on the margin deposited is:
a. 14%
b. 25%
c. 27%
d. 34%
A
d. 34%
The percentage loss, including commissions, on the margin deposited is 34%, calculated as follows:
Sell $218.70
Buy $221.40
Loss 2.70 per ton
Commission + .70 ($70 round-turn commission / 100 tons)
Total Loss $3.40 per ton
Total Loss $3.40 divided by $10 margin per ton = 34%.
19
Q
A customer is long foreign currency calls. A weakening of the dollar will produce a profit.
a. True
b. False
A
a. True
A trader long foreign currency calls wants the dollar to weaken. This will cause the value of the foreign currency to increase. A trader buys a call option when he expects a price increase.
20
Q
According to Rule 2-30, NFA members soliciting customer accounts must determine what additional risk disclosure information is appropriate for their customers.
a. True
b. False
A
a. True
NFA members soliciting a customer’s account must decide what additional risk disclosure information is appropriate to fully inform a customer of the risks associated with futures trading.
21
Q
The price of soybeans is $5.50 per bushel. Margin is 35 cents per bushel. The customer deposited total margin of $5,250. The contract size is 5,000 bushels. The price of soybeans increases by 3%. Based upon the margin deposit, the amount of profit or loss realized by the customer would be:
a. 10.79%
b. 15.70%
c. 16.10%
d. 47.10%
A
d. 47.10%
The price of soybeans increases $.165 ($5.50 x .03). As a percent of the margin deposit of $.35, this represents a 47.1% profit:
.165 / .350 = 47.1%
22
Q
A portfolio is valued at $3,500,000. The S&P 500 futures contract is trading 862.45 (contract value equals 250 x the index price). The number of contracts needed to hedge the portfolio is:
a. 8
b. 16
c. 4,058
d. 14,000
A
b. 16
If the S&P 500 is trading at 862.45, each contract provides a hedge of $215,612.50 (862.45 x 250 = $215,612.50). If the portfolio is valued at $3,500,000, it would take sixteen contracts to hedge ($3,500,000 divided by $215,612.50 = 16.2 contracts). 16.2 contracts = 16 contracts to hedge because you always round down.
23
Q
A cotton farmer estimates his yield at 450,000 lbs. The cash price of cotton when he places his hedge is 58.79 cents/lb. He hedges by using 9 July cotton futures contracts. The futures hedge is established at a price of 61.05 cents/lb. When the hedge is lifted, the farmer sells his cotton in the cash market at 56.94 cents/lb. and his futures position is covered at 58.98 cents/lb. The net price per pound the farmer receives as a result of the hedge is:
a. 56.94 cents/lb.
b. 58.57 cents/lb.
c. 58.79 cents/lb.
d. 59.01 cents/lb.
A
d. 59.01 cents/lb.
The net price per pound is 59.01 cents, calculated as follows:
##
24
Q
The time value of an option increases as the option moves in the money.
a. True
b. False
A
b. False
The intrinsic value of an option increases as the option moves in the money.
25
Rule 2-30, the "Know Your Customer Rule," requires all of the following information about a customer EXCEPT:
a. Annual income
b. Age
c. Investment experience
d. Educational background
**d. Educational background**
The "Know Your Customer Rule" requires that the AP obtain the customer's annual income, age and investment experience.
26
Which of the following is a bull call spread?
a. Buy one 88 call/sell one 90 put
b. Buy one 88 call/sell one 90 call
c. Buy one 90 call/sell one 88 call
d. Buy one 90 call/sell one 90 put
**b. Buy one 88 call/sell one 90 call**
Buying a lower strike price call and selling a higher strike price call is a bull call spread.
27
NFA members must have a plan in place that enables them to operate their business in the event of a disaster.
a. True
b. False
**a. True**
The NFA adopted Rule 2-38 that requires members to have in place, a plan that enables them to operate their business with minimal disruption to customers in the event of a disaster. This is called a disaster recovery plan.
28
A customer buys three December Canadian dollar futures contracts. The position is established at .8340. The contract size is 100,000 dollars. When the position is liquidated, the position is offset at .8418. Total commissions are $150. The profit as a result of this trade is:
a. $2,190
b. $2,340
c. $23,250
d. $23,400
**a. $2,190**
The profit is $2,190, calculated as follows:
Buy .8340
Sell .8418
Profit .0078
Contract size x 100,000
Profit $780
# of Contracts x 3
Total Profit $2,340
Total Commissions - 150
Net Profit $2,190
29
A Commodity Pool Operator must distribute an account statement monthly, for pools with net assets of more than $200,000.
a. True
b. False
**b. False**
The account statement must be distributed at least monthly to pool participants in the case of pools with net assets of more than $500,000. If net assets are $500,000 or less, then it must be sent at least quarterly.
30
Under Rule 2-30, the "Know Your Customer Rule," the only adequate risk disclosure information for certain customers is that futures trading is too risky for them.
a. True
b. False
**a. True**
Not all customers are suited to trade commodities. For those customers not suited to trade commodities, the only adequate risk disclosure information is that futures trading is too risky for them.
31
A customer assumes a long position in a futures contract on which original margin is 30 cents and maintenance margin is 20 cents. The contract consists of 5,000 units at a price of $8.10. The contract subsequently declines to $8.05. In this case, the customer will:
a. Be called for $500 additional margin
b. Be called for $1,000 additional margin
c. Not be called for additional margin until the price drops to $7.60
d. Not be called for additional margin until the price drops below $8.00
**d. Not be called for additional margin until the price drops below $8.00**
The customer will not be called for additional margin until the price drops below $8.00. This is determined as follows:
Initial .30
Maintenance .20
The difference between initial and maintenance margin is .10. The futures price is $8.10 less .10 equals $8.00.
32
Exchange rules state that changes in margin requirements shall be effective on:
a. Transactions executed prior to the margin change
b. Transactions executed subsequent to the margin change
c. Certain specified transactions only
d. All transactions
**d. All transactions**
Changes in margin requirements are effective on all transactions.
33
A buying hedge is used to lock in the sale price of the cash commodity and a selling hedge is used to lock in the purchase price of the cash commodity.
a. True
b. False
**b. False**
A buying hedge is used to lock in the purchase price of the cash commodity and a selling hedge is used to lock in the selling price of the cash commodity.
34
The seller of a put option receives a short futures position when the option is exercised.
a. True
b. False
**b. False**
The seller of a put option receives a long futures position when a put option is exercised by the buyer.
35
The CFTC regulates all futures trading except broad-based stock index futures and options. These are regulated by the SEC.
a. True
b. False
**b. False**
The CFTC regulates futures trading including futures and options on broad-based stock indexes.
36
If the basis strengthens, the long hedger will have a profit.
a. True
b. False
**b. False**
If the basis strengthens, the long hedger will have a loss. A strengthening basis is when the basis becomes more positive. A long hedger has bought futures because he is short the basis. We can create a theoretical situation to solve this problem:
Cash Futures
0 BUY 2
0 SELL 1
0 LOSS 1
The basis changed from 2 under to 1 under. This is a strengthening basis.
Note: Markets are considered normal unless otherwise stated in the question.
37
Ms. Rice takes a long position of 14 contracts of heating oil at a price of .4530. She deposits margin of $2,000 per contract. The position is offset at .4880. Round-turn commission is $65. The contract size is 42,000 gallons. The percentage of profit based on the margin deposited is:
a. 7.03%
b. 70.25%
c. 73.50%
d. 142.35%
**b. 70.25%**
The percentage of profit based on the margin deposited is 70.25%, calculated as follows:
Buy $ .4530
Sell $ .4880
Profit $ .0350
Contract size 42,000 gallons
Profit $ 1,470
Round-turn commission - 65
Net profit per contract $1,405
Net profit per contract / margin per contract = % profit on margin deposit
$1,405 / $2,000 = 70.25%
38
A customer anticipates a weakening of the dollar and goes long the British pound futures contract. The September contract is trading 1.6574 bid/offered at 1.6575. The customer places an order to buy seven contracts at 1.6580 stop. The order is elected and filled at 1.6582. The contract size is 62,500 pounds. Round-turn commissions are $35. When the position is liquidated, the customer receives a fill at 1.7822. The resulting profit from the trade including any necessary adjustment due is:
a. $54,250.00
b. $54,005.00
c. $7,727.50
d. $7,715.00
**b. $54,005.00**
The profit is $54,005, calculated as follows:
Long 1.6582
Sell 1.7822
Profit .1240
Contract size x 62,500 lbs.
Profit $ 7,750
Commission - 35 (round-turn)
Net Profit $7,715 (per contract)
# of Contracts x 7
Net Profit $54,005
39
A pension fund manager has a portfolio valued at $650,000 which consists primarily of blue chip stocks. The manager uses the MMI to hedge. Each index point equals $250. The futures position is established when the MMI is at 408.65. Later, the MMI is at 385.30 and the portfolio is worth $620,000. The hedge provided a:
a. Profit of $35,025 on the futures and a $30,000 loss on the cash portfolio position
b. Loss of $35,025 on the futures and a gain of $30,000 on the cash portfolio position
c. Profit of $40,862.50 on the futures and a $30,000 loss on the cash portfolio position
d. Loss of $40,862.50 on the futures and a gain of $30,000 on the cash portfolio position
**a. Profit of $35,025 on the futures and a $30,000 loss on the cash portfolio position**
The hedge provided a profit of $35,025 on the futures and a $30,000 loss on the cash position, calculated as follows:
Step 1
MMI 408.65
Component
x 250.00
Value of futures contract $102,162.50
Step 2
$650,000 = 6.36 contracts
$102,162.50
Step 3
6 contracts are used to hedge
Step 4
Cash | Futures
$650,000 Sell 408.65
620,000 Buy 385.30
Loss $30,000 Gain 23.35 x 250.00
$5,837.50 per contract
x 6 contracts
Gain $35,025.00
Step 5
Summary:
Loss of $30,000 on cash portfolio Gain of $35,025 on futures hedge
40
The first disciplinary action against an AP who has violated CFTC regulations is:
a. A fine
b. Suspension
c. Revocation
d. A cease-and-desist order
**d. A cease-and-desist order**
The first action taken after a violation has been determined is to issue a cease-and-desist order.
41
According to exchange rules, an order to sell wheat at around 3.50 1/2 is a type of discretionary order and is not permitted.
a. True
b. False
**a. True**
"Around" orders are a type of discretionary order and are not permitted.
42
Inflation rates are as follows: Germany 6%, Switzerland 4%, United States 5%, Japan 8%, Great Britain 5%. Which of the following is an appropriate trading strategy if this trend is expected to continue?
a. Sell Swiss franc calls
b. Buy Japanese yen calls
c. Buy Euro calls
d. Sell British pound calls
**d. Sell British pound calls**
If the inflation rate remained the same, the value of British pounds will remain stable against the U.S. dollar. Selling British pound calls would be the appropriate trading strategy.
43
An American exporter receives payment in a foreign currency. The hedger is concerned that the dollar will strengthen against the foreign currency. The most effective hedge against an exchange rate loss would be to buy foreign currency futures.
a. True
b. False
**b. False**
An American exporter who receives payment in a foreign currency is concerned that the dollar will strengthen (increase in value) against the foreign currency. To hedge, the exporter would sell foreign currency futures or buy put options on foreign currency futures.
44
The time value of an option decreases at an accelerating rate as the option approaches expiration.
a. True
b. False
**a. True**
The time value of an option decreases at an accelerating rate as the option approaches expiration.
45
According to Rule 2-30, the "Know Your Customer Rule," if a customer refuses to disclose required information, an account may be opened if the customer's refusal is noted and the account is approved by the branch office manager. Such a record need not be made in the case of a non-U.S. customer.
a. True
b. False
**a. True**
A record need not be kept for a non-U.S. customer who refuses to disclose required information.
46
A homebuilder creates a hedge against an increase in lumber prices with eight contracts. The hedge was established with a basis of 3.20 under. When the hedge is lifted, the basis is 2.45 under. The lumber contract is 150,000 board ft. and the price is quoted in dollars per 1,000 board ft. The result of the hedge is:
a. A profit of $900
b. A loss of $900
c. A profit of $9,000
d. A loss of $9,000
**b. A loss of $900**
The homebuilder is concerned with rising lumber costs and will buy futures to hedge. He is short the basis and has established a long hedge. He established the hedge with futures at $3.20 per 1,000 board ft. over the price of cash and lifted the hedge with futures $2.45 per 1,000 board ft. over the price of cash. The problem is solved as follows:
Cash | Futures
0 Buy $3.20
0 Sell 2.45
0 Loss .75 per 1,000 board ft.
Contract size x 150.00 board ft.
Loss $112.50 per contract
x 8 contracts
Loss as a result of hedge $900.00
47
A customer buys a September 86 T-bond put and pays a premium of 2-14 when the September futures are at 85-18. The time value in the option premium is:
a. $218.75
b. $437.50
c. $1781.25
d. $2000.00
**c. $1781.25**
The time value in the option premium is $1,781.25, calculated as follows:
Strike price of put 86-00/32
Minus September futures - 85-18/32
Equals intrinsic value 14/32
Minimum tick x $31.25
$437.50
Option premium = 2-14/64
Option premium = $2,000 + (14 x $15.625)
Option premium = $2,218.75
Option premium $2,218.75
Minus intrinsic value - 437.50
Equals time value $1,781.25
Note: T-bond futures trade in 1/32nd ($31.25)
Options on T-bond futures trade in 1/64th ($15.625)
48
A customer anticipates a strengthening dollar and goes short six June Swiss franc futures contracts at .5930. The contract size is 125,000 francs. When the position is liquidated, the market is trading .6130 bid/offered at .6131. The customer places a limit order to buy at .6131 and is filled at .6131. Commissions are $25 round-turn. The profit or loss as a result of this trade is a:
a. Loss of $15,225
b. Profit of $14,925
c. Loss of $2,537.50
d. Profit of $2,487.50
**a. Loss of $15,225**
The loss as a result of the trade is $15,225, calculated as follows:
Sell .5930
Buy .6131
Loss .0201
Contract size x 125,000.00 Swiss francs
Loss $2,512.50
Commission + 25.00
Loss $2,537.50 (per contract)
# of Contracts x 6
Total Loss $15,225.00
49
A Commodity Pool Operator must include in his disclosure document:
a. Business background for three years
b. Any civil or criminal action in the past three years
c. Performance history for five years
d. The cautionary statement, "The CFTC has not passed upon the merits of participating in this pool nor has the Commission passed on the adequacy or accuracy of this disclosure document."
**d. The cautionary statement, "The CFTC has not passed upon the merits of participating in this pool nor has the Commission passed on the adequacy or accuracy of this disclosure document."**
A Commodity Pool Operator must include the cautionary statement given in his disclosure document.
50
Promotional material that mentions the possibility of profits in futures trading does not need to state the possibility of the risk of loss since a customer must sign a risk disclosure statement prior to trading commodities.
a. True
b. False
**b. False**
Promotional material that mentions the possibility of profits must be accompanied by an equally prominent statement of the risk of loss.
51
Buying futures, buying calls and selling puts is known as a conversion.
a. True
b. False
**b. False**
A conversion is buying futures, selling calls and buying puts.
52
A customer believes interest rates will decrease and takes the appropriate position of five contracts in the September T-bill futures contract. The position is established at a price of 94.20. He liquidates the position when the price is 93.25. Total commission is $300. The net profit or loss on the trade is a:
a. $11,575.00 profit
b. $11,575.00 loss
c. $11,875.00 profit
d. $12,175.00 loss
**d. $12,175.00 loss**
The net loss is $12,175, calculated as follows:
Buy T-bills 94.20
Sell T-bills 93.25
Loss .95 basis points
x 25 minimum tick
Loss per contract $2,375.00
x 5 contracts
Loss on 5 contracts $11,875.00
Total Commission + 300.00
Total loss $12,175.00
53
General Motors intends to issue $50,000,000 in commercial paper in six months. The current commercial paper rate is 9.37%. The three-month T-bill rate is 8.66%. To hedge against an increase in interest rates, the Treasurer of GM should:
a. Buy T-bill futures and sell T-bills in the cash market
b. Sell T-bill futures and buy T-bills in the cash market
c. Sell T-bill futures
d. Buy T-bill futures
**c. Sell T-bill futures**
To hedge against an increase in interest rates, one should sell T-bill futures or buy put options on T-bill futures.
54
A customer buys three December 88 T-bond calls at 1-28. If the December futures price is 92-16 when the option is exercised, the trader's profit is:
a. $7,200.00
b. $7,875.00
c. $9,187.50
d. $11,437.50
**c. $9,187.50**
The trader's profit is $9,187.50, calculated as follows:
Market Price 92-16/32
Strike price 88-00/32
Intrinsic Value 4-16/32 % of $100,000
or
($4,500 x $1,000) + (16 x $31.25)
$4,000 + $500
$4,500
Option Premium = 1-28/64 or $1,000 + (28 x 15.625)
Option Premium = $1,437.50
$4,500 - $1,437.50 = $3,062
x 3 contracts
$9,187.50
55
A Commodity Trading Advisor's disclosure document must include only the CTA's commodity business background. Any other businesses the CTA was involved in would be irrelevant.
a. True
b. False
**b. False**
The CTA must disclose his business background for five years. If the CTA's business background includes business other than commodities, they must be disclosed.
56
A long hedger is short the basis and a short hedger is long the basis.
a. True
b. False
**a. True**
A long hedger is short the basis and a short hedger is long the basis.
57
Open interest is the total number of long and short contracts that have not been liquidated.
a. True
b. False
**b. False**
Since each contract consists of a buy and a sell, it would be incorrect to add buys and sells together to determine open interest. Open interest would be the number of long or short contracts that have not been liquidated.
58
There is a direct correlation between risk and leverage.
a. True
b. False
**a. True**
There is a direct correlation between risk and leverage. If leverage is increased, risk is increased.
59
A customer expects the Consumer Price Index to indicate that the inflation rate has slowed and that the economy is cooling. He expects the yield on bonds to decrease and takes a position of five contracts in the September T-bond futures contract. The position is established at 88-24. When the position is liquidated, T-bonds are at 90-20. Round-turn commissions are $40. The profit or loss as a result of this trade is a:
a. $1,835.00 profit
b. $1,915.00 loss
c. $9,175.00 profit
d. $9,575.00 loss
**c. $9,175.00 profit**
The profit as a result of the trade is $9,175, calculated as follows:
Sell 90-20/32
Buy 88-24/32
Profit 1-28/32% of $100,000
= 1 x $1,000 + (28 x $31.25)
Profit = $1,875
Commission - 40
Net Profit $1,835 per contract
# of Contracts x 5
Net Profit $9,175
60
If the CFTC determines that an associated person has violated the CEA, the CFTC has authority to seek injunctive relief in federal court.
a. True
b. False
**a. True**
The CFTC may go directly to court to prevent someone from violating the Commodity Exchange Act (CEA).
61
Which of the following is equivalent to a short futures position?
a. Long two puts
b. Short a call and short a put
c. Short a call and long a put
d. Long a call and short a put
**c. Short a call and long a put**
The equivalent of a short futures position is a synthetic short futures position. A synthetic short futures position is a long put option and a short call option.
62
A CPO is exempt from registration with the NFA. The AP of this firm must register with the NFA.
a. True
b. False
**b. False**
If the firm is exempt from registration, the employees (APs) are exempt from registration.
63
A customer has a large blue chip stock portfolio. He anticipates a market decline and would like to hedge $800,000 of the portfolio using the Major Market Index (MMI). Each index point equals $250. The futures price is currently 440.65. Which of the following would be the best hedging strategy?
a. Buy 7 MMI futures contracts
b. Sell 7 MMI futures contracts
c. Buy 8 MMI futures contracts
d. Sell 8 MMI futures contracts
**b. Sell 7 MMI futures contracts**
The best hedging strategy is to sell 7 MMI futures contracts. Remember that you round down so as not to expose the customer to the risk associated with being short futures.
$440.65 futures price
x 250.00 contract size
$110,162.50 value of futures contract
$800,000 (portfolio) / $110,162.50 (value of futures contract) = 7.26 contracts
64
A customer anticipates a change in interest rates and buys four September 91.50 T-bill calls paying .38, when the September T-bill futures contract is trading 91.48. In August, the futures price is 92.37. If the customer exercised his option, his profit would be:
a. $812.50
b. $1,225.00
c. $4,900.00
d. $5,100.00
**c. $4,900.00**
The profit would be $4,900, calculated as follows:
Market Price 92.37
Strike Price 91.50
Intrinsic Value .87 Basis Points
Option Premium - .38 Basis Points
.49 Basis Points Profit
Minimum Tick x $25
Profit per contract $1,225
x 4 Contracts
Profit $4,900 on 4 contracts
65
The NFA board of directors can take an action against a member, requiring that the firm immediately cease doing business, prior to holding a hearing on the matter.
a. True
b. False
**a. True**
The NFA president, with concurrences from the board of directors, can initiate a member responsibility action with or without a hearing. The most extreme action that may be taken would be to require the firm to immediately cease doing business.
66
Corn is trading $2.40 per bushel. The current interest rate is 10%. Storage costs are 3.2 cents per month. The monthly carrying charge is:
a. 3.2 cents
b. 5.2 cents
c. 6.2 cents
d. 27.2 cents
**b. 5.2 cents**
The carrying charge is interest, storage and insurance. The question asks the monthly carrying based on an interest rate of 10% and storage costs of 3.2 cents per month.
interest rate x cash price / 12 months = monthly interest
(10% x $2.40) / 12 = 2 cents monthly interest
storage cost 3.2 cents
monthly interest 2.0 cents
monthly carrying charge 5.2 cents
67
Promotional material includes standardized oral presentations.
a. True
b. False
**a. True**
Promotional material includes standardized oral presentations.
68
In March, a customer believes that short-term interest rates will move higher. He believes that short-term rates will go over long-term rates which will cause the yield curve to invert. He decides to enter a T-bond spread order on the CBT. The order is for ten spreads. The spread position is established at a differential of 0-16. The June leg is reported sold at a price of 87-30. The September leg is reported bought at 87-14. The spread is liquidated at a differential of 0-02. The June leg is covered at 89-28. The September leg is liquidated at 89-26. The profit as a result of this trade is:
a. $350.00
b. $437.50
c. $3,500.00
d. $4,375.00
**d. $4,375.00**
The profit as a result of the trade is $4,375, calculated as follows:
June | September Buy 89-28 Sell 89-26
Sell 87-30 Buy 87-14
Loss 1-30/32 Profit 2-12/32
Net Profit of 0-14/32% of $100,000
or
14 x $31.25 = $437.50
x 10 contracts
$4,375.00 Profit
69
A CPO who acts as the Commodity Trading Advisor to a pool that he operates must register as a CTA.
a. True
b. False
**b. False**
A CPO who acts as the CTA to a pool that he operates is exempt from registering as a CTA.
70
An NFA member may be fined up to $250,000 per violation by the Regional Conduct Committee.
a. True
b. False
**a. True**
An NFA member may be fined up to $250,000 per violation by the Regional Conduct Committee.
71
Fed funds are the overnight borrowing of reserves by banks from other banks.
a. True
b. False
**a. True**
Fed funds are the overnight borrowing of reserves by banks from other banks.
72
If applicable, position reports must be submitted:
a. Annually
b. Monthly
c. Weekly
d. Daily
**d. Daily**
If a trader (hedger or speculator) equals or exceeds the position reporting level, the required report must be submitted daily.
73
In April, a corporation issues bonds with a price equal to 88-14. The corporation intends to issue another $25,000,000 of bonds in July. The bonds will have an 18-year maturity. The corporation hedges its offering using the futures market. Treasury bond futures prices are as follows:
June 89-21
Sept 89-19
Dec 89-17
Mar 89-15
When the hedge is lifted, the bonds are issued at a price equal to 87-30. The futures position is offset at 88-26. Including the result of the hedge, the bonds are issued at:
a. 87-05
b. 88-23
c. 88-25
d. 89-07
**b. 88-23**
The bonds are issued at 88-23, calculated as follows:
##
74
The September 89.75 eurodollar call option is trading .58 when the September futures contract is trading 89.92. Which of the following indicates the intrinsic and time value of the option contract?
a. No intrinsic value and $1,450 time value
b. $265.63 intrinsic value and $640.63 time value
c. $1,025 intrinsic value and $425 time value
d. $425 intrinsic value and $1,025.00 time value
**d. $425 intrinsic value and $1,025.00 time value**
There is intrinsic value of $425 and time value of $1,025, calculated as follows:
Market Price 89.92
Strike Price 89.75
Intrinsic Value 17 Basis Points
Option Premium - Intrinsic Value = Time Value
58 Basis Points - 17 Basis Points = 41 Basis Points
x $25 (Minimum Tick) x $25 (Minimum Tick)
$425 Intrinsic Value; $1,025 Time Value
75
An FCM who guarantees an Introducing Broker is responsible to customers of the IB in arbitration and reparations proceedings, but the FCM is not subject to NFA disciplinary actions for violations by the IB.
a. True
b. False
**b. False**
An FCM who guarantees an IB is subject to NFA disciplinary actions for violations by the IB.
76
Your customer has the following butterfly call spread position:
Long 1 March 90.25 Eurodollar call
Short 2 March 90.50 Eurodollar calls
Long 1 March 90.75 Eurodollar call
At expiration, where would the price of the underlying futures contract have to be for the customer to realize his maximum profit?
a. 90.75
b. 90.50
c. 90.25
d. 90.00
**b. 90.50**
For a customer to realize the maximum profit potential in a butterfly call spread, the underlying futures contract price should be at the center strike price of the spread (90.50).
77
A customer instructs his broker to enter the following order on the CBT:
Buy 8 Sept corn -- Sell 8 Dec corn
Dec 9 point premium stop
This order may not be placed on the CBT.
a. True
b. False
**a. True**
Stop spread and combination stop spread orders may not be placed on the Chicago Board of Trade (CBT).
78
A customer monitoring the weather in the Midwest anticipates above average rainfall in the next week. He places an order to sell eight contracts of August soybeans at 611 1/4 cents. The contract size is 5,000 bushels. The customer's order is filled at 611 1/4 cents and he establishes a short position of eight contracts. The rainfall for the next week is below normal. The customer places an order to buy eight contracts of August soybeans at the market. The order is filled at 625 1/2 cents. Round-turn commissions are $45. The profit or loss as a result of this trade is a:
a. $667.50 gain
b. $757.50 loss
c. $5,350.00 gain
d. $6,060.00 loss
**d. $6,060.00 loss**
The loss as a result of this trade is $6,060, calculated as follows:
Buy 625 1/2 cents
Sell 611 1/4 cents
Loss 14 1/4 cents
Contract size x 5,000.00 bushels
Loss $712.50
Commission + 45.00 (round turn)
Loss $757.50 per contract
# of Contracts x 8
Total Loss $6,060.00
79
To establish a credit spread a trader would:
Buy a 240 call
Buy a 250 call
Write a 250 call
Write a 240 call
a. I and II
b. I and IV
c. II and III
d. II and IV
**d. II and IV**
The trader must establish a bear call spread. A bear call spread is a credit spread which involves selling a lower strike price call option and buying a higher strike price call option. The lower the strike price of a call option, the higher the option premium.
80
An FCM is responsible for all of the following EXCEPT:
a. Prohibiting floor brokers from trading for their own accounts
b. Maintaining records for five years
c. Segregating customer funds
d. Reporting activity for traders whose positions exceed the reporting level
**a. Prohibiting floor brokers from trading for their own accounts**
An FCM is not responsible for prohibiting floor brokers from trading for their own accounts
81
The live cattle futures contract can be used to hedge fed steers but not fed heifers.
a. True
b. False
**b. False**
The live cattle futures contract can be used to hedge steers (males) or heifers (females) but only steers may be delivered against a live cattle futures contract.
82
Which of the following would be a short straddle on gold?
a. Long February, short April
b. Long April, short February
c. Long a call and short a put
d. Short a call and short a put
**d. Short a call and short a put**
A short straddle is selling a call option and selling a put option at the same strike price and the same expiration date.
83
A homebuilder makes an agreement with a lumber mill to purchase lumber for delivery in three months, with the price of the lumber to be based on the price on the day of delivery. When the homebuilder places his hedge, the cash price of lumber is $180.80/1,000 board ft. and July lumber futures on the CME are trading $186.90/1,000 board ft. When the homebuilder lifts his hedge, the futures position is liquidated at $192.60/1,000 board ft. and lumber at the mill is trading $186.10/1,000 board ft. Considering both the changes in the cash and futures prices, the cost of the lumber to the homebuilder is:
a. $180.40/1,000 board ft.
b. $181.20/1,000 board ft.
c. $186.10/1,000 board ft.
d. $191.80/1,000 board ft.
**BLANKANSWER**
The cost of the lumber to the homebuilder is $180.40/1,000 board ft., calculated as follows:
Cash | Futures Actual price 186.10 | Buy 186.90
Minus futures profit -5.70 | Sell 192.60
Cost as a Result of the Hedge 180.40 | Profit 5.70
84
A customer believes interest rates are going to increase and enters a bear call spread in the T-bond option contract. The strike prices of the options are 88 and 90. The option premiums are 1-18 and 0-28. What is the customer's maximum risk?
a. $ 687.50
b. $ 843.75
c. $1,156.25
d. $1,312.50
**c. $1,156.25**
The maximum risk is $1,156.25, calculated as follows:
Sell 88 Credit 1-18/64
Buy 90 Debit 0-28/64
Net Credit 0-54/64% of $100,000
or
54 x $15.625
Net Credit = $843.75
Maximum Risk = Difference in Strike Prices - Net Credit
= (90-88) - $843.75
= $2,000 - $843.75
Maximum Risk = $1,156.25
85
Since the cost of an option cannot be determined until the option is purchased, the Option Risk Disclosure Document does not have to state the elements of its cost.
a. True
b. False
**b. False**
The Option Risk Disclosure Document must state the elements that make up its cost (intrinsic value and time value).
86
There is no physical delivery in a eurodollar time deposit futures contract. It has a cash settlement.
a. True
b. False
**a. True**
The eurodollar futures contract has a cash settlement. There is no physical delivery.
87
Sugar futures prices are as follows:
Oct 11.40
March 10.71
May 10.40
July 10.19
Oct 9.99
This type of market is known as a(n):
a. Premium market
b. Normal market
c. Carrying charge market
d. Inverted market
**d. Inverted market**
When the price of the near month of a futures contract is above the deferred month of a futures contract, the market is known as inverted.
88
A customer will have $400,000 to invest in the stock market when his T-bills mature in 45 days. When they mature, he intends to use the proceeds to buy $400,000 of blue chip stocks. Currently, the Major Market Index is trading 507.30 bid/offered at 507.40. The customer believes the market is heading sharply higher and places an order to buy 3 December Major Market Index futures contracts at 507.30. The contract size is 250 times the index price. The margin requirement per contract is $4,000 initial and $2,500 maintenance. The customer deposits the required margin in his account. The customer's order is filled and a long position of three contracts is established at 507.30. That night, the settlement price for the December futures contract is 505.80. The current equity in the customer's account is:
a. $3,625
b. $6,375
c. $10,875
d. $13,125
**c. $10,875**
The current equity in the customer's account is $10,875, calculated as follows:
Buy 507.30
Settlement Price 505.80
Unrealized Loss 1.50
Contract Size x $250.00
Unrealized Loss 375.00 per contract
# of Contracts x 3
Total Unrealized Loss $1,125.00
Margin $4,000.00 per contract
# of Contracts x 3
Total Margin 12,000.00
Total Unrealized Loss - $1,125.00
Current Equity $10,875.00
89
A CTA is exempt from registration with the CFTC if he writes a newsletter but does not handle any managed accounts.
a. True
b. False
**b. False**
A CTA who writes a newsletter must register with the CFTC.
90
Options customers with discretionary accounts must be provided with an explanation of the nature and risks of the strategies to be used for the account.
a. True
b. False
**a. True**
An explanation of the nature and risks of strategies must be given to options customers with discretionary accounts.
91
In a normal futures market with annual interest rates at 8%, monthly storage charges at one cent per bushel, a cash price of $2.20 per bushel and a December corn futures contract at $2.23 per bushel, one would expect the March futures contract to be priced at:
a. 225 1/2
b. 226
c. 228
d. 230 3/8
**d. 230 3/8**
The March futures contract would be priced at 230 3/8, calculated as follows:
cash price x interest rate / 12 = monthly interest
2.20 x 8% / 12 = 1.46 monthly interest
1.46 cents interest + 1 cent storage = 2.46 monthly carrying charge
December to March has a three month cost of carry.
2.46 per month
x 3 months
7.38 carrying charge for 3 months
(Nearby futures contract price + 3 months cost of carry) / March futures price
$2.23 + 7.38 cents = 230 3/8 cents
92
When yields on long-term securities are greater than the yields on short-term securities, the yield curve is normal.
a. True
b. False
**a. True**
When yields on long-term securities are greater than the yields on short-term securities, the yield curve is normal.
93
A German automobile exporter sends cars to the United States and is paid in dollars. He decides to hedge using options rather than futures. The most likely strategy would be to:
a. Buy Euro puts
b. Sell Euro puts
c. Buy Euro calls
d. Sell Euro calls
**c. Buy Euro calls**
A German exporter paid in dollars is short the Euro. To hedge, the exporter should buy Euro call options.
94
A customer is long 20 put options with a delta of .30. Which of the following would neutralize this position?
a. Buying six call options with a delta of .60
b. Selling ten call options with a delta of .60
c. Selling six futures contracts
d. Buying six futures contracts
**d. Buying six futures contracts**
In order to neutralize an option position which is 30% as volatile as the underlying futures contract (delta = .30), it is necessary to use 30% as many futures contracts (20 option contracts x 30% = 6 futures contracts). To neutralize long puts, it is necessary to buy the futures, in this case, 6 futures contracts.
95
The Option Risk Disclosure Document must contain which of the following information?
a. Description of costs if option is exercised
b. Writer's margin requirements
c. Procedure for exercising the option
d. All of the above
**d. All of the above**
All of the items given must be included in the Option Risk Disclosure Document.
96
An American food company imports chocolate from a Swiss company. The order calls for delivery of the chocolate in March. The current exchange rate is .5975. The order is valued at $1,195,000. The March Swiss Franc futures contract is .5950 (125,000 Swiss francs in a contract). How many futures contracts should the importer use to hedge?
a. 6 contracts
b. 9 contracts
c. 10 contracts
d. 16 contracts
**d. 16 contracts**
The value of the order, $1,195,000, divided by the current exchange rate (.5975) equals 2,000,000 Swiss francs. The value of the order in Swiss francs (2,000,000) divided by the contract size (125,000 Swiss francs) equals the number of contracts used to hedge (16).
97
Which of the following orders would be placed to buy at a price above the prevailing price in the market?
a. Market if touched
b. Stop order
c. Limit order
d. Contingency order
**b. Stop order**
A buy stop order is placed at a price above the prevailing price in the market.
98
A customer anticipates that a pending recession will drive interest rates lower. He takes a position in the September eurodollar futures contract based on the perception of lower interest rates. When the order is placed, September eurodollar futures are trading 91.08 bid/offered at 91.09. The customer places an order for four contracts. The order is filled and the customer's position is established at 91.08 on the four contracts. When the customer liquidates his position, he receives a fill at 91.16. Round-turn commissions are $55. The customer's profit or loss as a result of this trade is a:
a. $580 profit
b. $780 profit
c. $1,020 loss
d. $1,220 loss
**a. $580 profit**
The customer's profit is $580, calculated as follows:
Sell 91.16
Buy 91.08
Profit .08 Basis points
x $ 25 (Minimum tick)
Profit $200
Commission - 55 (Round-turn)
Profit $145 (Per contract)
# of Contracts x 4
Net Profit $580
99
The contents of commodity promotional material to be broadcast over the radio is regulated by the FCC.
a. True
b. False
**b. False**
Commodity promotional material used on television or radio is regulated by the NFA.
100
A customer places an order with his IB. When the order is executed, the FCM calls the IB to report the execution. The IB does not need to time-stamp the report of execution since that is the responsibility of the FCM.
a. True
b. False
**b. False**
The IB must time-stamp the report of execution on his order ticket when it is received from the FCM.
101
A customer notices that the June 98 T-bond call option is trading 2-29. This option has a delta of 60%. The June T-bond futures contract is simultaneously trading 99-01. The customer buys a June 98 T-bond call option and pays a premium of 2-29. If the June T-bond futures contract rallied to 99-21, the premium of the June 98 T-bond call option would be:
a. $2,640.63
b. $2,828.13
c. $3,281.25
d. $6,025.00
**b. $2,828.13**
The premium of the June 98 T-bond call option would be $2,828.13, calculated as follows:
Premium + Change in Premium = New Premium
(99-21/32 - 99-01/32) x 60%
20/32 x 60%
2-29/64 + 0-12/32
$2,000 + (29 + $15.625) + (12 x $31.25)
$2,453.13 + ($375.00) = $2,828.13
102
The more speculators in a market, the more volatile the market.
a. True
b. False
**b. False**
The more speculators in a market, the more liquid the market. The price change between transactions is very small in a liquid market since it is actively traded by many speculators.
103
Hedgers that use options will write either a put or a call.
a. True
b. False
**b. False**
Hedgers that use options will buy either a put or a call.
104
The June gold futures contract that trades on the Comex is trading $400.00 per ounce. The June 400 gold put option is trading $6.60 per ounce. The delta of the put option is .50 (50%) If the price of June gold futures was to decline to $390.00, the premium of the June 400 gold put option would be:
a. $5.00
b. $8.30
c. $9.90
d. $11.60
**d. $11.60**
The premium of the June 400 gold put option would be $11.60, calculated as follows:
Premium + Change in Premium = New Premium
$6.60 + $5.00 = $11.60
($10 x 50%)
105
A Futures Commission Merchant and a Commodity Pool Operator have an agreement stating that the FCM will pay a commission to the CPO for any business the CPO does on behalf of the pool through this particular FCM. This information does not need to be disclosed in the disclosure document provided to the pool participants.
a. True
b. False
**b. False**
Any commission paid by a FCM to a CPO for any business the CPO does on behalf of a pool through the particular FCM, must be disclosed in the disclosure document.
106
A September 94 put is trading 37 basis points. The September futures contract is at 93.77. The time value in the put option is:
a. $218.75
b. $350.00
c. $437.50
d. $575.00
**b. $350.00**
Since the strike price of the put option is above the market price, the put option is in-the-money. T-bills and eurodollars trade in basis points. The minimum tick of these contracts, for both options and futures, is a basis point (.01) = $25. The strike price of an in-the-money option minus the market price equals the intrinsic value of an option's premium.
strike price of put 94.00
minus futures price 93.77
equals intrinsic value .23 basis points
option premium = intrinsic value + time value
option premium - intrinsic value = time value
option premium 37
minus intrinsic value -23
equals time value 14
.14 basis points x $25 = $350 time value.
107
A firm has the right to, but is not required to, liquidate a customer's account if a margin call has not been met in a reasonable amount of time.
a. True
b. False
**a. True**
A firm has the right to liquidate positions in a customer's account if a margin call has not been met in a reasonable amount of time.
108
If open interest is declining but prices remain stable, the market is considered strong.
a. True
b. False
**b. False**
If open interest is declining, prices must be declining for the market to be considered strong.
109
A customer expects interest rates to decline. Which of the following would you recommend to your customer?
a. Buying puts
b. Selling puts
c. Buying calls
d. Selling calls
**c. Buying calls**
If interest rates decline, bond prices increase. The investor would, therefore, buy a call.
110
A Commodity Pool Operator is exempt from registration as a CPO if it receives no compensation, does not advertise, and operates only one pool at a time.
a. True
b. False
**a. True**
In general, registration is required unless:
1. The total gross capital contributions to all pools is less than $400,000; and
2. there are no more than 15 participants in any one pool.
or
a single pool is operated;
the pool operator does not advertise; and
the pool operator does not receive compensation for operating the pool.
111
The final settlement price of the S&P 500 futures contract is:
a. The settlement price at the end of trading on the last trading day
b. The closing price of the actual cash index at the end of trading on the last trading day
c. The opening price of the actual cash index the day after the last trading day
d. None of the above
**c. The opening price of the actual cash index the day after the last trading day**
The final settlement price of the S&P 500 futures contract is the opening price of the actual cash index the day after the last trading day.
112
An investment company portfolio includes $34 million in 7 5/8% Treasury bonds that mature in December of 2009. The company wishes to hedge its portfolio using the CBOT option on T-bond futures contracts. To establish a weighted hedge, how many option contracts should be bought if the bond conversion factor is .9629?
a. 327 puts
b. 328 puts
c. 327 calls
d. 328 calls
**a. 327 puts**
For a weighted hedge, one would need 327 put options. In order not to be considered a speculator, you need to round down to the nearest whole number.
Portfolio size $34,000,000 = (340) Puts / Contract size ($100,000)
340 Puts x .9629 (Conversion Factor) = 327.38
113
A soybean farmer knows that beans in the cash market are trading between $7.58 1/4 and $7.59 3/4. He also knows that the July soybean futures contract on the CBOT is currently trading $7.70 1/4 - $7.70 1/2. He decides to hedge his entire crop and places a market order. The order is filled at $7.70 1/4. When he lifts his hedge, he receives $7.38 in the cash market. July futures are trading $7.48 1/2 - $7.49. He receives a report from his associated person that his order has been filled at $7.49. As a result of the hedge, the price per bushel the farmer receives for his soybeans is:
a. $7.58 1/4
b. $7.59
c. $7.59 1/4
d. $7.59 1/2
**c. $7.59 1/4**
The price per bushel that the farmer receives is $7.59 1/4, calculated as follows:
Cash | Futures Actual Price 7.38 cents | Sell 7.70 1/4 cents
Plus futures profit .21 1/4 | Buy 7.49 cents
Net price as a result of the hedge: 7.59 1/4 | Profit .21 1/4 cents
114
If the market rises at the same time a put is written, the seller loses money.
a. True
b. False
**b. False**
The seller of a put option is bullish and wants the market to rise.
115
Funds collected from customers in a commodity pool are used to purchase T-bills. Margin requirements for the pool will be met with T-bills. This information must be disclosed in the disclosure document.
a. True
b. False
**a. True**
The form in which the pool will meet its margin requirements must be disclosed in the disclosure document.
116
Short-term interest rates are not a factor to consider in the basis between cash and futures.
a. True
b. False
**b. False**
Short-term interest rates are a factor to consider in the basis relationship.
117
A factor to consider when placing a stop order is:
a. Open interest
b. Volume
c. Time of the day
d. Volatility
**d. Volatility**
Volatility should be considered when placing a stop order. In a volatile market the price change between trades can be large. The price at which the stop is placed should be considered in a volatile market so that the position has a chance to profit before the position is stopped out.
118
When a CTA is registered with the CFTC, the trading advisor may state that his qualifications have been approved by the CFTC.
a. True
b. False
**b. False**
No persons or firms may state that their qualifications have been approved by the CFTC.
119
NFA rules require members to conduct Ethics Training Programs on an annual basis.
a. True
b. False
**b. False**
This is false. NFA members must conduct and maintain records concerning the ethics training the firm provides to its associated persons. Members are allowed flexibility as to the frequency and method of training used to fulfill its ethics training requirement.
120
The Commodity Pool Disclosure Document does not need to state the types of commodity interest the pool will trade because the CTA makes those decisions.
a. True
b. False
**b. False**
The CPO Disclosure Document must state the types of commodity interests the pool will trade.
