Stock Index Futures and Options Quiz

Chantioco, Copes, Marcelo, Marquez, Medina

1. 1st Statement: Stock index futures contracts are limited to the Dow Jones Industrial Average. 2nd Statement: Stock index futures provide the portfolio manager a realistic alternative to selling part or the entire portfolio in a declining market. A. both statements are TRUE. B. the first statement is TRUE, and the second statement is FALSE. C. both statements are FALSE. D. the first statement is FALSE, and the second statement is TRUE.

2. 1st Statement: Futures provide a more efficient hedge than options in that gains and losses can be more fully offset by futures contracts. 2nd Statement: The profit on a stock index option is determined by the change in the underlying value of the futures contract. A. both statements are TRUE. B. the first statement is TRUE, and the second statement is FALSE. C. both statements are FALSE. D. the first statement is FALSE, and the second statement is TRUE. 3. 1st Statement: The purpose of hedging with stock index futures is not to magnify the gains and losses on the hedged stock portfolio. 2nd Statement: Options generally allow for a more efficient hedge than futures. A. both statements are TRUE. B. the first statement is TRUE, and the second statement is FALSE. C. both statements are FALSE. D. the first statement is FALSE, and the second statement is TRUE. 4. 1st Statement: Some investors are prohibited by law from participating in the futures market. 2nd Statement: Options on stock index futures may settle on a cash basis or exercise the option to obtain the futures contract.

Stock Index Futures and Options Quiz

Chantioco, Copes, Marcelo, Marquez, Medina

A. both statements are TRUE. B. the first statement is TRUE, and the second statement is FALSE. C. both statements are FALSE. D. the first statement is FALSE, and the second statement is TRUE. 5. 1st Statement: A combination of a futures and options contract is an option to purchase futures contract. 2nd Statement: One disadvantage to stock index futures is that there is no opportunity for arbitraging as there is for stock index options. A. both statements are TRUE. B. the first statement is TRUE, and the second statement is FALSE. C. both statements are FALSE. D. the first statement is FALSE, and the second statement is TRUE. 6. Stock index futures and options allow an investor to A) select a security from any of those included in the index. B) gain or lose from the movement of the index. C) trade any of the securities in the index. D) none of the above. 7. The Nikkei 225 contract has a multiplier at A) 5 B) 100 C) 250 D) 500 8. In order to effectively hedge a stock portfolio, the portfolio manager must know the total dollar value of the portfolio, the current index futures price and A) the number of contracts available in the market. B) the portfolio P/E ratio. C) the relative volatility of the portfolio to the market. D) more than one of the above. 9. Options may have advantages over futures for some investors because A) options have a lower margin requirement. B) options provide more efficient hedging.

Stock Index Futures and Options Quiz

Chantioco, Copes, Marcelo, Marquez, Medina

C) market. D)

some investors are prohibited by law from participating in the futures none of the above.

10. Program trading calls for A) computer-based trigger points for large trades. B) the use of computer programs to measure performance C) the use of only call options D) all of the above Answers: 1. D 2. B 3. B 4. A 5. B 6. B 7. A 8. C 9. C 10. A