Question 1

The period over which a call or put option exists is

Accepted Answer

A) determined by its delivery date. 
B) determined by its expiration date. 
C) determined by whether the contract is written for a commodity or for a financial instrument. 
D) indeterminate; options contracts continue in existence until either the buyer or the seller desires to discontinue it. 
A) determined by its delivery date. 
B) determined by its expiration date. 
C) determined by whether the contract is written for a commodity or for a financial instrument. 
D) indeterminate; options contracts continue in existence until either the buyer or the seller desires to discontinue it.

Question 2

The role of the Commodity Futures Trading Commission is to

Accepted Answer

A) set the prices of futures contracts. 
B) operate the Chicago Mercantile Exchange. 
C) operate the Chicago Board of Trade. 
D) monitor potential price manipulation in futures trading. 
A) set the prices of futures contracts. 
B) operate the Chicago Mercantile Exchange. 
C) operate the Chicago Board of Trade. 
D) monitor potential price manipulation in futures trading.

Question 3

The elimination of riskless profit opportunities is known as

Accepted Answer

A) arbitrage. 
B) options. 
C) swaps. 
D) liquidity. 
A) arbitrage. 
B) options. 
C) swaps. 
D) liquidity.

Question 4

If you look at the financial page listings for options contracts and find that prices on call options on Treasury bonds are rising over a particular time period, options market investors must expect that

Accepted Answer

A) Treasury bond prices will be higher in the future. 
B) Treasury bond prices will be lower in the future. 
C) Treasury bond yields will be higher in the future. 
D) Call option prices will fall again at the end of the period. 
A) Treasury bond prices will be higher in the future. 
B) Treasury bond prices will be lower in the future. 
C) Treasury bond yields will be higher in the future. 
D) Call option prices will fall again at the end of the period.

Question 5

On the day of delivery

Accepted Answer

A) the spot price will equal the futures price. 
B) the spot price will be greater than the futures price by an amount equal to the current interest rate times the futures price. 
C) the futures price will be greater than the spot price by an amount equal to the current interest rate times the spot price. 
D) there is no necessary relation between the spot price and the futures price. 
A) the spot price will equal the futures price. 
B) the spot price will be greater than the futures price by an amount equal to the current interest rate times the futures price. 
C) the futures price will be greater than the spot price by an amount equal to the current interest rate times the spot price. 
D) there is no necessary relation between the spot price and the futures price.

Question 6

The fee charged by the seller of an option is referred to as the

Accepted Answer

A) market price. 
B) option premium. 
C) futures fee. 
D) call price. 
A) market price. 
B) option premium. 
C) futures fee. 
D) call price.

Question 7

In an options contract, another name for the strike price is the

Accepted Answer

A) market price. 
B) exercise price. 
C) equilibrium price. 
D) fixed price. 
A) market price. 
B) exercise price. 
C) equilibrium price. 
D) fixed price.

Question 8

If you buy a futures contract for U.S. Treasury bills and on the delivery date the interest rate on T-bills is lower than you expected, you will have

Accepted Answer

A) lost money on your long position. 
B) gained money on your long position. 
C) lost money on your short position. 
D) gained money on your short position. 
A) lost money on your long position. 
B) gained money on your long position. 
C) lost money on your short position. 
D) gained money on your short position.

Question 9

The price at which an option may be exercised is called the

Accepted Answer

A) market price. 
B) equilibrium price. 
C) strike price. 
D) fixed price. 
A) market price. 
B) equilibrium price. 
C) strike price. 
D) fixed price.

Question 10

As the time of delivery in a futures contract gets closer

Accepted Answer

A) the futures price gets closer to the spot price. 
B) the futures price generally rises further above the spot price. 
C) the futures price generally falls further below the spot price. 
D) the futures and spot prices remain the same as they were when the contract was first created. 
A) the futures price gets closer to the spot price. 
B) the futures price generally rises further above the spot price. 
C) the futures price generally falls further below the spot price. 
D) the futures and spot prices remain the same as they were when the contract was first created.

Question 11

The improper use of derivatives was blamed in part for all of the following EXCEPT

Accepted Answer

A) the stock market crash following September 11. 
B) the bankruptcy of Enron. 
C) the downfall of Long Term Capital Management. 
D) the bankruptcy of Orange County in California. 
A) the stock market crash following September 11. 
B) the bankruptcy of Enron. 
C) the downfall of Long Term Capital Management. 
D) the bankruptcy of Orange County in California.

Question 12

Financial futures contracts are regulated by

Accepted Answer

A) the Commodity Futures Trading Commission. 
B) the Federal Trade Commission. 
C) the Interstate Commerce Commission. 
D) the Options and Futures Commission. 
A) the Commodity Futures Trading Commission. 
B) the Federal Trade Commission. 
C) the Interstate Commerce Commission. 
D) the Options and Futures Commission.

Question 13

A put option is said to be in the money if

Accepted Answer

A) it is written on a Treasury bill or other money-market asset. 
B) it has increased in price since it was first written. 
C) the price of the underlying asset is currently less than the strike price. 
D) the price of the underlying asset is currently less than the strike price plus the option premium. 
A) it is written on a Treasury bill or other money-market asset. 
B) it has increased in price since it was first written. 
C) the price of the underlying asset is currently less than the strike price. 
D) the price of the underlying asset is currently less than the strike price plus the option premium.

Question 14

Derivative instruments are

Accepted Answer

A) assets such as bonds or common stock that derive their value from the value of the companies which issue them. 
B) assets whose rates of returns must be derived from information published in financial tables. 
C) assets which derive their value from underlying assets. 
D) computers which display real-time financial information. 
A) assets such as bonds or common stock that derive their value from the value of the companies which issue them. 
B) assets whose rates of returns must be derived from information published in financial tables. 
C) assets which derive their value from underlying assets. 
D) computers which display real-time financial information.

Question 15

Options on securities are regulated by the

Accepted Answer

A) CFTC. 
B) Federal Reserve. 
C) SEC. 
D) FBI. 
A) CFTC. 
B) Federal Reserve. 
C) SEC. 
D) FBI.

Question 16

One benefit of a swap compared to futures and options is that they

Accepted Answer

A) promote liquidity. 
B) reduce the risk for both the buyer and seller. 
C) can be better tailored to meet the needs of market participants. 
D) can involve financial instruments and not just commodities. 
A) promote liquidity. 
B) reduce the risk for both the buyer and seller. 
C) can be better tailored to meet the needs of market participants. 
D) can involve financial instruments and not just commodities.

Question 17

The big decline in share prices on the New York Stock Exchange that occurred in October 1987

Accepted Answer

A) was almost entirely attributable to the effects of index arbitrage. 
B) occurred despite the complete ban on index arbitrage in existence at the time. 
C) was not mainly the result of index arbitrage. 
D) was made less severe than it might have been because of the effects of index arbitrage. 
A) was almost entirely attributable to the effects of index arbitrage. 
B) occurred despite the complete ban on index arbitrage in existence at the time. 
C) was not mainly the result of index arbitrage. 
D) was made less severe than it might have been because of the effects of index arbitrage.

Question 18

If the price of a futures contract increases, then

Accepted Answer

A) the exchange will collect the amount of the increase from the seller of the contract and transfer it to the account of the buyer of the contract. 
B) the exchange will collect the amount of the increase from the buyer of the contract and transfer it to the account of the seller of the contract. 
C) the exchange will collect the amount of the increase from both the buyer and the seller and place it in escrow until the delivery date. 
D) the additional funds will be required from either the buyer or the seller until the delivery date. 
A) the exchange will collect the amount of the increase from the seller of the contract and transfer it to the account of the buyer of the contract. 
B) the exchange will collect the amount of the increase from the buyer of the contract and transfer it to the account of the seller of the contract. 
C) the exchange will collect the amount of the increase from both the buyer and the seller and place it in escrow until the delivery date. 
D) the additional funds will be required from either the buyer or the seller until the delivery date.

Question 19

A shortcoming of swaps that has led to the participation of large firms and financial institutions is

Accepted Answer

A) the lack of privacy. 
B) need to assess creditworthiness. 
C) desire for more flexibility. 
D) limited size of the market. 
A) the lack of privacy. 
B) need to assess creditworthiness. 
C) desire for more flexibility. 
D) limited size of the market.

Question 20

Suppose that Acme Widget is currently selling for $100 per share and you own a call option to buy Acme Widget at $75 per share. The intrinsic value of your option is

Accepted Answer

A) $25. 
B) $75. 
C) $100. 
D) not possible to determine in the absence of information on values of the share price of Acme Widget between now and the expiration date of the call. 
A) $25. 
B) $75. 
C) $100. 
D) not possible to determine in the absence of information on values of the share price of Acme Widget between now and the expiration date of the call.

Exam 9: Derivative Securities and Derivative Markets

The period over which a call or put option exists is

The role of the Commodity Futures Trading Commission is to

The elimination of riskless profit opportunities is known as

If you look at the financial page listings for options contracts and find that prices on call options on Treasury bonds are rising over a particular time period, options market investors must expect that

On the day of delivery

The fee charged by the seller of an option is referred to as the

In an options contract, another name for the strike price is the

If you buy a futures contract for U.S. Treasury bills and on the delivery date the interest rate on T-bills is lower than you expected, you will have

The price at which an option may be exercised is called the

As the time of delivery in a futures contract gets closer

The improper use of derivatives was blamed in part for all of the following EXCEPT

Financial futures contracts are regulated by

A put option is said to be in the money if

Derivative instruments are

Options on securities are regulated by the

One benefit of a swap compared to futures and options is that they

The big decline in share prices on the New York Stock Exchange that occurred in October 1987

If the price of a futures contract increases, then

A shortcoming of swaps that has led to the participation of large firms and financial institutions is

Suppose that Acme Widget is currently selling for $100 per share and you own a call option to buy Acme Widget at $75 per share. The intrinsic value of your option is

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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