Statements is false about futures contracts

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Reference no: EM131974407

1. Right before the stock market opens, on TV you notice that the S&P 500 futures with one-month maturity is quoted 5% lower than yesterday’s settlement price, but there is no change in the fair value. Part of the reason is that several Asian markets experienced a sharp drop during the night. Among the following interpretations of the drop in futures price, which is the closest to be correct?

(a) In a week, the S&P 500 index will probably be 5% lower than its yesterday’s close.

(b) In a month, the S&P 500 index will probably be 5% lower than its yesterday’s close.

(d) Today, the S&P 500 index will probably close 5% lower than yesterday.

2. Which of the following statements is false about futures contracts?

(a) If you are in a short position of the S&P 500 index futures, on maturity date you deliver a portfolio of stocks that resembles the S&P 500 index portfolio.

(b) A futures price of a futures contract is the delivery price that makes the contract have zero value.

(c) If you are in a long position of a futures contract, you need to worry about whether you have enough money even if you plan to hold it until maturity.

(d) There are differences between futures and forward contracts although we often use the same formula to price them.

Reference no: EM131974407

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