Question 1

In a call options contract, the

Accepted Answer

A) seller has the obligation to deliver the instrument at a specified time. 
B) buyer has the obligation to receive the instrument at a specified time. 
C) seller may choose whether or not to deliver the instrument at a specified time. 
D) buyer will choose to exercise his option only if the value of the underlying security falls. 
A) seller has the obligation to deliver the instrument at a specified time. 
B) buyer has the obligation to receive the instrument at a specified time. 
C) seller may choose whether or not to deliver the instrument at a specified time. 
D) buyer will choose to exercise his option only if the value of the underlying security falls.

Question 2

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

Accepted Answer

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

Question 3

Between 1981 and the early 2000s,

Accepted Answer

A) trading in financial futures declined in importance relative to trading in agricultural and mineral commodities futures. 
B) trading in financial futures increased in importance relative to trading in agricultural and mineral commodities futures. 
C) trading in agricultural and commodities futures was discontinued. 
D) trading in financial futures was discontinued. 
A) trading in financial futures declined in importance relative to trading in agricultural and mineral commodities futures. 
B) trading in financial futures increased in importance relative to trading in agricultural and mineral commodities futures. 
C) trading in agricultural and commodities futures was discontinued. 
D) trading in financial futures was discontinued.

Question 4

Futures contracts are traded

Accepted Answer

A) face-to-face by investors. 
B) on exchanges by commodity brokers. 
C) over-the-counter by dealers. 
D) on the floor of the New York Stock Exchange. 
A) face-to-face by investors. 
B) on exchanges by commodity brokers. 
C) over-the-counter by dealers. 
D) on the floor of the New York Stock Exchange.

Question 5

As an option nears its expiration date, the size of the premium approaches

Accepted Answer

A) zero. 
B) infinity. 
C) its intrinsic value. 
D) an amount which varies, depending on prevailing market interest rates on the expiration date. 
A) zero. 
B) infinity. 
C) its intrinsic value. 
D) an amount which varies, depending on prevailing market interest rates on the expiration date.

Question 6

The terms of futures contracts traded in the United States are

Accepted Answer

A) standardized as to amount or value, but not as to location or time of delivery. 
B) standardized as to location or time of delivery, but not as to amount or value. 
C) not standardized, but are determined entirely on the basis of the agreement entered into by the buyer and seller. 
D) standardized as to amount or value and as to location or time of delivery. 
A) standardized as to amount or value, but not as to location or time of delivery. 
B) standardized as to location or time of delivery, but not as to amount or value. 
C) not standardized, but are determined entirely on the basis of the agreement entered into by the buyer and seller. 
D) standardized as to amount or value and as to location or time of delivery.

Question 7

A total return swap involves transferring both

Accepted Answer

A) credit and default risk. 
B) interest rate and credit risk. 
C) default and exchange rate risk. 
D) credit and exchange rate risk. 
A) credit and default risk. 
B) interest rate and credit risk. 
C) default and exchange rate risk. 
D) credit and exchange rate risk.

Question 8

Which of the following statements about the presence of speculators in futures markets is correct?

Accepted Answer

A) Their main objective is to reduce their exposure to risk. 
B) They aid hedgers by increasing the liquidity in futures markets. 
C) They make it difficult for hedgers to find someone to take the opposite side of their positions. 
D) Once a futures market participant is known to be a speculator he or she is no longer allowed to participate in the market. 
A) Their main objective is to reduce their exposure to risk. 
B) They aid hedgers by increasing the liquidity in futures markets. 
C) They make it difficult for hedgers to find someone to take the opposite side of their positions. 
D) Once a futures market participant is known to be a speculator he or she is no longer allowed to participate in the market.

Question 9

If a futures contract for U.S. Treasury bonds increases by "15" in the financial page listings, the value of the contract increased by

Accepted Answer

A) $15.00. 
B) $468.75. 
C) $2133.33. 
D) $15,000.00. 
A) $15.00. 
B) $468.75. 
C) $2133.33. 
D) $15,000.00.

Question 10

An interest rate swap involving the exchange of floating-rate obligations for fixed-rate obligations is known as

Accepted Answer

A) swaption. 
B) swap option. 
C) forward swaps. 
D) plain vanilla. 
A) swaption. 
B) swap option. 
C) forward swaps. 
D) plain vanilla.

Question 11

Compare the rights and obligations of buyers and sellers of futures contracts with the rights of buyers and sellers of options contracts.

Accepted Answer

Buyers and sellers of futures contracts

Question 12

Speculators in futures and options markets

Accepted Answer

A) reduce the efficiency of these markets. 
B) are acting contrary to U.S. securities laws. 
C) accept risk transferred to them by hedgers. 
D) reduce the liquidity of these markets. 
A) reduce the efficiency of these markets. 
B) are acting contrary to U.S. securities laws. 
C) accept risk transferred to them by hedgers. 
D) reduce the liquidity of these markets.

Question 13

In a covered option,

Accepted Answer

A) the strike price is always above the exercise price. 
B) the seller owns the underlying asset. 
C) the seller does not have an interest in the underlying asset. 
D) the option premium never deviates from the intrinsic value. 
A) the strike price is always above the exercise price. 
B) the seller owns the underlying asset. 
C) the seller does not have an interest in the underlying asset. 
D) the option premium never deviates from the intrinsic value.

Question 14

A speculator who believes strongly that interest rates will fall would be likely to

Accepted Answer

A) buy futures contracts on Treasury bills. 
B) sell futures contracts on Treasury bills. 
C) sell Treasury bonds in the spot market. 
D) decrease now the amount of money which he lends. 
A) buy futures contracts on Treasury bills. 
B) sell futures contracts on Treasury bills. 
C) sell Treasury bonds in the spot market. 
D) decrease now the amount of money which he lends.

Question 15

A lender who is worried that its cost of funds might rise during the term of a loan it has made can hedge against this rise by

Accepted Answer

A) buying futures contracts on Treasury bills. 
B) selling futures contracts on Treasury bills. 
C) buying call options on Treasury bills. 
D) increasing the amount of money which it lends. 
A) buying futures contracts on Treasury bills. 
B) selling futures contracts on Treasury bills. 
C) buying call options on Treasury bills. 
D) increasing the amount of money which it lends.

Question 16

A swap is

Accepted Answer

A) another name for a put option. 
B) another name for a call option. 
C) an agreement between two or more persons to exchange sets of cash flows over some future period. 
D) the name for the replacement of a futures contract by an options contract. 
A) another name for a put option. 
B) another name for a call option. 
C) an agreement between two or more persons to exchange sets of cash flows over some future period. 
D) the name for the replacement of a futures contract by an options contract.

Question 17

Profits from speculation arise because of

Accepted Answer

A) the spread between the bid and ask prices on bonds. 
B) the illiquidity of markets for derivative instruments. 
C) the high information costs in markets for derivative instruments. 
D) disagreements among traders about future prices of a commodity or financial instrument. 
A) the spread between the bid and ask prices on bonds. 
B) the illiquidity of markets for derivative instruments. 
C) the high information costs in markets for derivative instruments. 
D) disagreements among traders about future prices of a commodity or financial instrument.

Exam 9: Derivative Securities and Derivative Markets

In a call options contract, the

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

Between 1981 and the early 2000s,

Futures contracts are traded

As an option nears its expiration date, the size of the premium approaches

The terms of futures contracts traded in the United States are

A total return swap involves transferring both

Which of the following statements about the presence of speculators in futures markets is correct?

If a futures contract for U.S. Treasury bonds increases by "15" in the financial page listings, the value of the contract increased by

An interest rate swap involving the exchange of floating-rate obligations for fixed-rate obligations is known as

Compare the rights and obligations of buyers and sellers of futures contracts with the rights of buyers and sellers of options contracts.

Speculators in futures and options markets

In a covered option,

A speculator who believes strongly that interest rates will fall would be likely to

A lender who is worried that its cost of funds might rise during the term of a loan it has made can hedge against this rise by

A swap is

Profits from speculation arise because of

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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