Trading in Energy Derivatives Markets and Price Risk Management 07 - 10 July 2009, London, UK

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1. When a futures contract is traded on the exchange who ssumes the counterparty risk?
a. Seller who requests cash margin
b. The Exchange
c. Clearing house
d. A Bank who guarantees such transaction

2. On January 1 you buy December HSFO FOB Rotterdam Barges swap at 300 USD/MT. Later, on January 31 you decided to sell the contract back at 350 USD/MT to close and settle this transaction early. What is the outcome of these trades?
a. Profit less than 50 USD/MT
b. Profit equal to 50 USD/MT
c. Loss equal USD/MT
d. Profit greater than 50 USD/MT

3. A large refinery in the region has been unexpectedly shutdown. What impact would this event have on calendar spreads along the gasoil forward curve?
a. They would remain unchanged
b. The spreads would get stronger
c. The spreads would get weaker
d. The market will most likely be in contango

4. ICE Brent futures contracts trade as follows:
Bid Ask
Jan 60 60.2
Feb 61 61.2
Mar 62 62.2
Approximately, at what price would you expect to Sell calendar January ICE Brent Swap?
a. 60.5
b. 60.7
c. 61.5
d. 60

5. Which statement describes backwardation most accurately?
a. Bearish market, i.e. the prices are expected to be lower in the future
b. Bullish market, i.e. the prices are expected to be higher in the future
c. Market participants anticipate weaker demand
d. Market participants are willing to pay premium to buy commodity today

6. You bought a 0 Dec call option in January when Dec futures are traded at /bbl and sold it in march when the same contract traded at /bbl. What was the outcome?
a. You made profit equal to change in delta of the option as the underlying price increased
b. You incurred a loss because spot prices increased
c. You made /bbl profit
d. Uncertain as the time decay may have eroded the option value

7. Why do some traders prefer to trade Options vs Futures?
a. Options are easier to understand
b. Options are readily available
c. Options are more geared instruments
d. Options are easier to manage

8. When considering a reference price index for hedging underlying commodity one of the key tradeoffs is:
a. Hedge efficiency vs. market price
b. Liquidity vs. basis risk
c. Transparency vs. term structure
d. Open interest vs. traded volume

9. Which of the following Refinery strategies is solely based on a market term structure?
a. Hedging refining losses as percentage of purchased crude not offset by the sales of refined products
b. Hedging refining margin
c. Increasing and hedging of neutral stock
d. Hedging forward product sales exclusively for term contracts

10. Buy buying a call option and at the same time selling an underlying futures you create the following position:
a. Long put option
b. Short straddle
c. Short put option
d. Zero cost collar

If you would like to check your test against the correct answers, please send a request to Zhanna Hughes – zhanna@vostockcapital.com , Tel: +44 207 394 3093.