Question 1

Which of the following is not a financial derivative?

Accepted Answer

A)  stock
B)  futures
C)  options
D)  forward contractsE) A) and D)
F) A) and B)

Question 2

If you buy a put option on treasury futures at 110,and at expiration the market price is 115,the ________ will ________ exercised.

Accepted Answer

A)  call;be
B)  put;be
C)  call;not be
D)  put;not beE) None of the above
F) A) and B)

Question 3

A advantage of using swaps to hedge interest-rate risk is that swaps

Accepted Answer

A)  are less costly than futures.
B)  can be written for long horizons.
C)  are not subject to default risk.
D)  are more liquid than futures.E) B) and C)
F) All of the above

Question 4

An option that can be exercised at any time up to maturity is called

Accepted Answer

A)  a swap.
B)  a stock option.
C)  an European option.
D)  an American option.E) All of the above
F) A) and C)

Question 5

Parties who have bought a futures contract and thereby agreed to ________ (take delivery of) the bonds are said to have taken a ________ position.

Accepted Answer

A)  sell;short
B)  buy;short
C)  sell;long
D)  buy;longE) None of the above
F) C) and D)

Question 6

By hedging a portfolio,a bank manager

Accepted Answer

A)  reduces interest-rate risk.
B)  increases reinvestment risk.
C)  increases exchange-rate risk.
D)  increases the probability of gains.E) A) and B)
F) None of the above

Question 7

A contract that requires the investor to buy securities on a future date is called a

Accepted Answer

A)  short contract.
B)  long contract.
C)  hedge.
D)  cross.E) B) and C)
F) A) and D)

Question 8

A short contract requires that the investor

Accepted Answer

A)  sell securities in the future.
B)  buy securities in the future.
C)  hedge in the future.
D)  close out his position in the future.E) C) and D)
F) B) and C)

Question 9

Explain the margin requirement for financial futures and how marking to market affects the margin account.

Accepted Answer

Each contract requires a margin deposit ...

Question 10

Hedging by buying an option

Accepted Answer

A)  limits gains.
B)  limits losses.
C)  limits gains and losses.
D)  has no limit on option premiums.E) A) and B)
F) A) and C) B

Question 11

If,for a $1000 premium,you buy a $100,000 put option on bond futures with a strike price of 114,and at the expiration date the price is 110,your ________ is ________.

Accepted Answer

A)  profit;$4000
B)  loss;$4000
C)  profit;$3000
D)  loss;$3000E) B) and D)
F) A) and B)

Question 12

Options on individual stocks are referred to as

Accepted Answer

A)  stock options.
B)  futures options.
C)  American options.
D)  individual options.E) None of the above
F) B) and C) A

Question 13

A firm that sells goods to foreign countries on a regular basis can avoid exchange-rate risk by

Accepted Answer

A)  buying stock options.
B)  selling puts on financial futures.
C)  using a foreign exchange swap.
D)  buying swaptions.E) A) and B)
F) A) and C)

Question 14

The price specified on an option at which the holder can buy or sell the underlying asset is called the

Accepted Answer

A)  premium.
B)  call.
C)  strike price.
D)  put.E) C) and D)
F) B) and C) C

Question 15

If,for a $1000 premium,you buy a $100,000 put option on bond futures with a strike price of 110,and at the expiration date the price is 114,your ________ is ________.

Accepted Answer

A)  profit;$1000
B)  loss;$1000
C)  profit;$3000
D)  loss;$3000E) None of the above
F) B) and C)

Question 16

Options are contracts that give the purchasers the

Accepted Answer

A)  option to buy or sell an underlying asset.
B)  obligation to buy or sell an underlying asset.
C)  right to hold an underlying asset.
D)  right to switch payment streams.E) B) and D)
F) C) and D)

Question 17

On the expiration date of a futures contract,the price of the contract converges to the

Accepted Answer

A)  purchase price of the contract.
B)  average price over the life of the contract.
C)  price of the underlying asset.
D)  average of the purchase price and the price of the underlying asset.E) C) and D)
F) B) and D)

Question 18

Parties who have sold a futures contract and thereby agreed to ________ (deliver) the bonds are said to have taken a ________ position.

Accepted Answer

A)  sell;short
B)  buy;short
C)  sell;long
D)  buy;longE) B) and C)
F) A) and D)

Question 19

The payoffs for financial derivatives are linked to

Accepted Answer

A)  securities that will be issued in the future.
B)  the volatility of interest rates.
C)  previously issued securities.
D)  government regulations specifying allowable rates of return.E) All of the above
F) A) and B)

Question 20

Suppose you are currently in the long position of a long-term bond.In this case,to hedge against a capital loss,you would enter into a ________ contract to ________ a long-term bond in the future.

Accepted Answer

A)  interest-rate forward;sell
B)  interest-rate forward;buy
C)  exchange-rate forward;buy
D)  exchange-rate forward;sellE) A) and B)
F) All of the above

Exam 29: Web 4:financial Derivatives

Which of the following is not a financial derivative?

Correct AnswerverifiedShow Answer

If you buy a put option on treasury futures at 110,and at expiration the market price is 115,the ________ will ________ exercised.

Correct AnswerverifiedShow Answer

A advantage of using swaps to hedge interest-rate risk is that swaps

Correct AnswerverifiedShow Answer

An option that can be exercised at any time up to maturity is called

Correct AnswerverifiedShow Answer

Parties who have bought a futures contract and thereby agreed to ________ (take delivery of) the bonds are said to have taken a ________ position.

Correct AnswerverifiedShow Answer

By hedging a portfolio,a bank manager

Correct AnswerverifiedShow Answer

A contract that requires the investor to buy securities on a future date is called a

Correct AnswerverifiedShow Answer

A short contract requires that the investor

Correct AnswerverifiedShow Answer

Explain the margin requirement for financial futures and how marking to market affects the margin account.

Correct AnswerverifiedEach contract requires a margin deposit ...View AnswerShow Answer

Hedging by buying an option

Correct AnswerverifiedB

If,for a $1000 premium,you buy a $100,000 put option on bond futures with a strike price of 114,and at the expiration date the price is 110,your ________ is ________.

Correct AnswerverifiedShow Answer

Options on individual stocks are referred to as

Correct AnswerverifiedA

A firm that sells goods to foreign countries on a regular basis can avoid exchange-rate risk by

Correct AnswerverifiedShow Answer

The price specified on an option at which the holder can buy or sell the underlying asset is called the

Correct AnswerverifiedC

If,for a $1000 premium,you buy a $100,000 put option on bond futures with a strike price of 110,and at the expiration date the price is 114,your ________ is ________.

Correct AnswerverifiedShow Answer

Options are contracts that give the purchasers the

Correct AnswerverifiedShow Answer

On the expiration date of a futures contract,the price of the contract converges to the

Correct AnswerverifiedShow Answer

Parties who have sold a futures contract and thereby agreed to ________ (deliver) the bonds are said to have taken a ________ position.

Correct AnswerverifiedShow Answer

The payoffs for financial derivatives are linked to

Correct AnswerverifiedShow Answer

Suppose you are currently in the long position of a long-term bond.In this case,to hedge against a capital loss,you would enter into a ________ contract to ________ a long-term bond in the future.

Correct AnswerverifiedShow Answer

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If you buy a put option on treasury futures at 110,and at expiration the market price is 115,the will exercised.

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Parties who have bought a futures contract and thereby agreed to (take delivery of) the bonds are said to have taken a position.

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Each contract requires a margin deposit ...
View Answer

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B

If,for a $1000 premium,you buy a $100,000 put option on bond futures with a strike price of 114,and at the expiration date the price is 110,your is .

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A

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C

If,for a $1000 premium,you buy a $100,000 put option on bond futures with a strike price of 110,and at the expiration date the price is 114,your is .

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Parties who have sold a futures contract and thereby agreed to (deliver) the bonds are said to have taken a position.

Correct Answer
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Suppose you are currently in the long position of a long-term bond.In this case,to hedge against a capital loss,you would enter into a contract to a long-term bond in the future.

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