Reading 69: Futures Markets and Contracts- LOSe～ Q1-3

currency, likely, position, statements, following

LOS e: Describe the characteristics of the following types of futures contracts: Eurodollar, Treasury bond, stock index, and currency.

Q1. Which of the following statements about futures contracts on U.S. exchanges is least likely accurate?

A) If annualized 90-day LIBOR decreases from 3.64% to 3.58%, a long position in a $1 million Eurodollar futures contract loses $150.

B) Prices of currency futures contracts are quoted as U.S. dollars per unit of the foreign currency.

C) A $100,000 Treasury bond futures contract that settles at 102-16 represents Treasury bonds worth $102,500.

Q2. At the Chicago Board of Trade, futures on foreign currencies have a contract size fixed in:

A) dollars and are priced in dollars per foreign currency unit.

B) foreign currency units and are priced in dollars per foreign currency unit.

C) dollars and are priced in foreign currency units per dollar.

Q3. Which of the following statements regarding Treasury bond futures is least accurate?

A) They are a deliverable contract.

B) The contract size is $100,000.

C) Upon delivery, the long pays the short the futures price divided by the conversion factor for the bond the short chooses to deliver.

[2009] Session 17 - Reading 69: Futures Markets and Contracts- LOSe～ Q1-3

LOS e: Describe the characteristics of the following types of futures contracts: Eurodollar, Treasury bond, stock index, and currency. fficeffice" />

Q1. Which of the following statements about futures contracts on ffice:smarttags" />U.S. exchanges is least likely accurate?

A) If annualized 90-day LIBOR decreases from 3.64% to 3.58%, a long position in a $1 million Eurodollar futures contract loses $150.

B) Prices of currency futures contracts are quoted as U.S. dollars per unit of the foreign currency.

C) A $100,000 Treasury bond futures contract that settles at 102-16 represents Treasury bonds worth $102,500.

Correct answer is A)

The long position in a Eurodollar contract gains value when LIBOR decreases. Price quotes on Eurodollar futures are calculated as 100 minus annualized 90-day LIBOR in percent. A change in 90-day LIBOR of 0.01% represents a $25 change in value on a $1 million Eurodollar futures contract. If LIBOR decreases from 3.64% to 3.58%, the contract price increases six ticks from 96.36 to 96.42, so the long position gains 6 × $25 = $150.

Treasury bond futures that have a face value of $100,000 are quoted as a percent of face value with fractions measured in 1/32nds. A bond futures quote of 102-16 represents 102 16/32, or 102.5% of $100,000, which is $102,500.

Currency futures contracts are set in units of the foreign currency and stated as USD/unit.

Q2. At the Chicago Board of Trade, futures on foreign currencies have a contract size fixed in:

A) dollars and are priced in dollars per foreign currency unit.

B) foreign currency units and are priced in dollars per foreign currency unit.

C) dollars and are priced in foreign currency units per dollar.

Correct answer is B)

In the U.S., futures contracts for foreign currencies have a contract size fixed in foreign currency units (e.g. 125,000 Euros) and are priced in dollars per foreign currency unit (e.g. $0.08341 per Peso).

Q3. Which of the following statements regarding Treasury bond futures is least accurate?

A) They are a deliverable contract.

B) The contract size is $100,000.

C) Upon delivery, the long pays the short the futures price divided by the conversion factor for the bond the short chooses to deliver.

Correct answer is C)

The delivery price for Treasury bonds under the contract is multiplied by the conversion factor for the bond the short chooses to deliver. The other statements are true.