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| 80% - congratulations, you passed! |
| Exam: Free Series 3 Sample Exam Questions |
| Time Spent: 00 hours 8 minutes 19 seconds |
| Max. Marks: 10 |
| Marks Obtained: 8 |
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| Correct Answer Wrong Answer | ||||
| Q. No | Question | Correct Answer | Your Answer | Explanation |
|---|---|---|---|---|
| 1. | You are starting a new commodity pool to invest in the metals markets. You are putting together your offering materials. As part of your risk disclosure requirements you must include the following: THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. Where must this language appear? | on the cover of your disclosure document | on the cover of your disclosure document | This information is required to be on the front cover of your disclosure documents and it must be in capital letters as follows: THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. |
| 2. | In April, a trader who speculates on the price of crude oil reads an article about the political unrest in the middle east that could cause a disruption in the shipment of crude oil from the region. The trader would most likely do which of the following ? | Go long December Crude | Go long December Crude | A trader who speculates on in the price of crude oil who reads an article about the political unrest in the middle east that could cause a disruption in the shipment of crude oil from the region, would want to go long crude oil. As the supply disruption would cause a supply shortage and the price of crude oil should increase as a result of the shortage. |
| 3. | Family Farms, grows and produces corn in Iowa. Family Farms has entered into a contract with a local user of corn to sell a significant portion of this year’s crop to the local user. Which of the following is not true? | The local user has not taken on any performance risk | Family Farms may more efficiently operate its business | all of the choices are true except the local user has taken on performance risk. If Family Farms cannot deliver the agreed upon amount of corn the local user will have to obtain it elsewhere and may have to pay a higher price for the corn. |
| 4. | An investor who is short 1 December US T bond 103 put receives an exercise notice. The investor will receive : I. $10,300 II.$103,000 III. $100,000 par value T Bond IV. A December T bond futures contract | IV only | IV only | The option is for 1 December T bond futures contract, When the writer of a put is exercised the writer will take deliver of the underlying futures contract. |
| 5. | An investor purchases a September corn 500 call at .25 when September corn futures are trading at 490. The option is out of the money and has a delta of .45. At what price does the investor break even on September corn? | 525 | 525 | this case 500 +25=525. |
| 6. | An introducing broker may make the deposit of customer funds directly into the segregated account of the FCM so long as the IB has the written approval of: | The FCM | The CFTC | The introducing broker may make the deposit directly into the segregated account of the FCM so long as the IB has the written approval of the FCM. |
| 7. | A US exporter who has contracted to deliver 50,000 bushels of corn to a cattle grower in Mexico in 120 days but has not acquired the 50,000 bushels of corn, would need to do which of the following? | Purchase the corn in the spot market | Purchase the corn in the spot market | Because the exporter has entered into an unconditional contract to deliver the corn to the cattle grower in Mexico and does not own the corn, the exporter is short the basis. Of the choices listed only purchasing the corn in the spot market will allow the exporter to acquire the corn and make delivery. |
| 8. | A gold speculator went short 2 October Gold contracts at 1445. Each contract covers 100 Troy ounces of gold. If the price of gold fell to 1436.50 as a result of a stronger dollar and the trader closes out the position with an offsetting purchase of 2 October Gold contracts at 1436.50. The profit or loss excluding commissions would be: | $1,700 gain | $1,700 gain | The trader went short and wanted the price of gold to fall. Each gold contract represents 100 troy ounces as a result the profit per contact is $850 ($8.50 x 100 ounces ) the trader sold 2 contracts for a total profit of $1,700 excluding commissions. |
| 9. | A customer has sold short 1 June silver at 19.30 (5,000 troy ounces) and sold 1 June silver 19 put at .65. The customer will have a maximum gain of: | $4,750 | $4,750 | The investor's maximum gain is found by subtracting the strike price from their break even. In this case add the premium received from the sale of the put to the price at witch the futures contract was sold, 19.30 + 65 = 19.95, this is the investor's break even. 19.95- 19 = .95. .95 X 5,000 ounces = $4,750. |
| 10. | A customer establishes the following position: Sold 10 Oct gold 1520 puts at 4 Bought 10 Oct gold 1500 puts at 1 Each gold contract covers 100 Troy ounces of gold. Their maximum gain is: | $3,000 | $3,000 | On a credit spread the maximum gain is always the credit received. The investor sold the Higher strike put and received a premium of $4 per ounce X 100 ounces per contract = $400 per contract or $4,000 for the 10 contracts. To hedge the investor bought the put with the lower strike price and paid a total premium of $1,000. This made the net credit $3,000 which is the maximum gain. |
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