Question 1

When a financial institution hedges the interest-rate risk for a specific asset, the hedge is called a ________.

Accepted Answer

A)  macro hedge 
B)  micro hedge 
C)  cross hedge 
D)  futures hedge 
A)  macro hedge 
B)  micro hedge 
C)  cross hedge 
D)  futures hedge

Question 2

Which of the following features of futures contracts were not designed to increase liquidity?

Accepted Answer

A)  Standardized contracts 
B)  Traded up until maturity 
C)  Not tied to one specific type of bond 
D)  Can be closed with off setting trade 
A)  Standardized contracts 
B)  Traded up until maturity 
C)  Not tied to one specific type of bond 
D)  Can be closed with off setting trade

Question 3

If you sell in February a bond future contract for 120 that matures on June 30 of the same year, and at the maturity date the same future sells for 110, you have a ________ of $________.

Accepted Answer

A)  loss; 10000 
B)  loss; 10 
C)  profit; 10000 
D)  profit; 10 
A)  loss; 10000 
B)  loss; 10 
C)  profit; 10000 
D)  profit; 10

Question 4

If you buy a European call option on Canada bonds with a strike price of 115 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 120, you will ________ the option in order to make a profit of $________.

Accepted Answer

A)  not exercise; 5000 
B)  not exercise; 5 
C)  exercise; 5000 
D)  exercise; 5 
A)  not exercise; 5000 
B)  not exercise; 5 
C)  exercise; 5000 
D)  exercise; 5

Question 5

Options on futures contracts are referred to as ________.

Accepted Answer

A)  stock options 
B)  futures options 
C)  American options 
D)  individual options 
A)  stock options 
B)  futures options 
C)  American options 
D)  individual options

Question 6

The main reason to buy an option on a futures contract rather than buying the futures contract is ________.

Accepted Answer

A)  to reduce transaction cost 
B)  to preserve the possibility for gains 
C)  to limit losses 
D)  to remove the possibility for gains 
A)  to reduce transaction cost 
B)  to preserve the possibility for gains 
C)  to limit losses 
D)  to remove the possibility for gains

Question 7

If a firm is due to be paid in euros in two months, to hedge against exchange rate risk the firm should ________.

Accepted Answer

A)  sell foreign exchange futures short 
B)  buy foreign exchange futures long 
C)  stay out of the exchange futures market 
D)  buy foreign exchange forward contracts long 
A)  sell foreign exchange futures short 
B)  buy foreign exchange futures long 
C)  stay out of the exchange futures market 
D)  buy foreign exchange forward contracts long

Question 8

What is an interest-rate futures contract? How does it differ from an interest-rate forward contract?

Accepted Answer

An interest-rate futures contract is sim

Question 9

if you buy an option to sell Canada futures at 115, and at expiration the market price is 110, ________.

Accepted Answer

A)  the call will be exercised 
B)  the put will be exercised 
C)  the call will not be exercised 
D)  the put will not be exercised 
A)  the call will be exercised 
B)  the put will be exercised 
C)  the call will not be exercised 
D)  the put will not be exercised

Question 10

If Second Bank has more rate-sensitive liabilities then rate-sensitive assets, it can reduce interest rate risk with a swap which requires Second Bank to ________.

Accepted Answer

A)  pay a fixed rate while receiving a floating rate 
B)  receive a fixed rate while paying a floating rate 
C)  both receive and pay a fixed rate 
D)  both receive and pay a floating rate 
A)  pay a fixed rate while receiving a floating rate 
B)  receive a fixed rate while paying a floating rate 
C)  both receive and pay a fixed rate 
D)  both receive and pay a floating rate

Question 11

What are the pros and cons of forward contracts?

Accepted Answer

The advantage of forward contracts is th

Question 12

If you buy an option to buy Canada futures at 115, and at expiration the market price is 110, ________.

Accepted Answer

A)  the call will be exercised 
B)  the put will be exercised 
C)  the call will not be exercised 
D)  the put will not be exercised 
A)  the call will be exercised 
B)  the put will be exercised 
C)  the call will not be exercised 
D)  the put will not be exercised

Question 13

Financial derivatives include ________.

Accepted Answer

A)  stocks 
B)  bonds 
C)  forward contracts 
D)  foreign exchange 
A)  stocks 
B)  bonds 
C)  forward contracts 
D)  foreign exchange

Question 14

Why have options on financial futures become the most widely traded option contracts?

Accepted Answer

Option contracts are more likely to be w

Question 15

If you buy in February a bond future contract for 120 that matures on June 30 of the same year, and at the maturity date the same future sells for 110, you have a ________ of $________.

Accepted Answer

A)  loss; 10000 
B)  loss; 10 
C)  profit; 10000 
D)  profit; 10 
A)  loss; 10000 
B)  loss; 10 
C)  profit; 10000 
D)  profit; 10

Question 16

A put option gives the owner ________.

Accepted Answer

A)  the right to sell the underlying security 
B)  the obligation to sell the underlying security 
C)  the right to buy the underlying security 
D)  the obligation to buy the underlying security 
A)  the right to sell the underlying security 
B)  the obligation to sell the underlying security 
C)  the right to buy the underlying security 
D)  the obligation to buy the underlying security

Exam 13: Risk Management With Financial Derivatives

When a financial institution hedges the interest-rate risk for a specific asset, the hedge is called a ________.

Which of the following features of futures contracts were not designed to increase liquidity?

If you sell in February a bond future contract for 120 that matures on June 30 of the same year, and at the maturity date the same future sells for 110, you have a ________ of $________.

If you buy a European call option on Canada bonds with a strike price of 115 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 120, you will ________ the option in order to make a profit of $________.

Options on futures contracts are referred to as ________.

The main reason to buy an option on a futures contract rather than buying the futures contract is ________.

If a firm is due to be paid in euros in two months, to hedge against exchange rate risk the firm should ________.

What is an interest-rate futures contract? How does it differ from an interest-rate forward contract?

if you buy an option to sell Canada futures at 115, and at expiration the market price is 110, ________.

If Second Bank has more rate-sensitive liabilities then rate-sensitive assets, it can reduce interest rate risk with a swap which requires Second Bank to ________.

What are the pros and cons of forward contracts?

If you buy an option to buy Canada futures at 115, and at expiration the market price is 110, ________.

Financial derivatives include ________.

Why have options on financial futures become the most widely traded option contracts?

If you buy in February a bond future contract for 120 that matures on June 30 of the same year, and at the maturity date the same future sells for 110, you have a ________ of $________.

A put option gives the owner ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

If you sell in February a bond future contract for 120 that matures on June 30 of the same year, and at the maturity date the same future sells for 110, you have a of $.

If you buy a European call option on Canada bonds with a strike price of 115 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 120, you will the option in order to make a profit of $.

If you buy in February a bond future contract for 120 that matures on June 30 of the same year, and at the maturity date the same future sells for 110, you have a of $.