Question 1

Which one of the following stock index futures has a multiplier of 10 euros times the index?

Accepted Answer

A)  CAC 40 
B)  Hang Seng 
C)  Nikkei 
D)  DAX-30 
E)  CAC 40 and Hang Seng 
A)  CAC 40 
B)  Hang Seng 
C)  Nikkei 
D)  DAX-30 
E)  CAC 40 and Hang Seng

Question 2

Trading in stock index futures

Accepted Answer

A)  now exceeds buying and selling of shares in most markets. 
B)  reduces transactions costs as compared to trading in stocks. 
C)  increases leverage as compared to trading in stocks. 
D)  generally results in faster execution than trading in stocks. 
E)  All of the options are correct. 
A)  now exceeds buying and selling of shares in most markets. 
B)  reduces transactions costs as compared to trading in stocks. 
C)  increases leverage as compared to trading in stocks. 
D)  generally results in faster execution than trading in stocks. 
E)  All of the options are correct.

Question 3

If covered interest arbitrage opportunities exist,

Accepted Answer

A)  interest rate parity does not hold. 
B)  interest rate parity holds. 
C)  arbitragers will be able to make risk-free profits. 
D)  interest rate parity does not hold, and arbitragers will be able to make risk-free profits. 
E)  interest rate parity holds, and arbitragers will be able to make risk-free profits. 
A)  interest rate parity does not hold. 
B)  interest rate parity holds. 
C)  arbitragers will be able to make risk-free profits. 
D)  interest rate parity does not hold, and arbitragers will be able to make risk-free profits. 
E)  interest rate parity holds, and arbitragers will be able to make risk-free profits.

Question 4

Consider the following: $\begin{array}{lc}
 
 &\text { CE Now } \ 
  \text { Risk-free rate in the United States } & \text {  0.04 / year } \
 \text { Risk-free rate in Australia } & \text {   0.03 /  year} \
  \text { Spot exchange rate } &1.67A\$/\$\
\end{array}$
 What should be the proper futures price for a 1-year contract?

Accepted Answer

A)  1.703 A$/$ 
B)  1.654 A$/$ 
C)  1.638 A$/$ 
D)  1.778 A$/$ 
E)  1.686 A$/$ 
A)  1.703 A$/$ 
B)  1.654 A$/$ 
C)  1.638 A$/$ 
D)  1.778 A$/$ 
E)  1.686 A$/$

Question 5

Which two indices had the lowest correlation between them during the 2014-2018 period?

Accepted Answer

A)  S&P and DJIA 
B)  S&P and NASDAQ 100 
C)  DJIA and Russell 2000 
D)  S&P and Russell 2000 
E)  NASDAQ 100 and DJIA 
A)  S&P and DJIA 
B)  S&P and NASDAQ 100 
C)  DJIA and Russell 2000 
D)  S&P and Russell 2000 
E)  NASDAQ 100 and DJIA

Question 6

What is the dollar value of a Mini-Dow futures contract with a listed price of 31,630?

Accepted Answer

A)  $64,145 
B)  $145,750 
C)  $158,150 
D)  $61,450 
A)  $64,145 
B)  $145,750 
C)  $158,150 
D)  $61,450

Question 7

Consider the following: $\begin{array}{lc}
  \text { Risk-free rate in the United States } & \text {  0.04 / year } \
 \text { Risk-free rate in Australia } & \text {   0.03 /  year} \
  \text { Spot exchange rate } &1.67A\$/\$\
\end{array}$

If the market futures price is 1.69 A$/$, how could you arbitrage?

Accepted Answer

A)  Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and enter futures positions to purchase Australian dollars at the current futures price. 
B)  Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, and enter futures positions to sell Australian dollars at the current futures price. 
C)  Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchase Australian dollars at the current futures price. 
D)  Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price. 
E)  There is no arbitrage opportunity. 
A)  Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and enter futures positions to purchase Australian dollars at the current futures price. 
B)  Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, and enter futures positions to sell Australian dollars at the current futures price. 
C)  Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchase Australian dollars at the current futures price. 
D)  Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price. 
E)  There is no arbitrage opportunity.

Question 8

Credit risk in the swap market

Accepted Answer

A)  is extensive. 
B)  is limited to the difference between the values of the fixed rate and floating rate obligations. 
C)  is equal to the total value of the payments that the floating rate payer was obligated to make. 
D)  is extensive and equal to the total value of the payments that the floating rate payer was obligated to make. 
E)  None of the options are correct. 
A)  is extensive. 
B)  is limited to the difference between the values of the fixed rate and floating rate obligations. 
C)  is equal to the total value of the payments that the floating rate payer was obligated to make. 
D)  is extensive and equal to the total value of the payments that the floating rate payer was obligated to make. 
E)  None of the options are correct.

Question 9

Covered interest arbitrage

Accepted Answer

A)  ensures that currency futures prices are set correctly. 
B)  ensures that commodity futures prices are set correctly. 
C)  ensures that interest rate futures prices are set correctly. 
D)  ensures that currency futures prices and commodity futures prices are set correctly. 
E)  None of the options are correct. 
A)  ensures that currency futures prices are set correctly. 
B)  ensures that commodity futures prices are set correctly. 
C)  ensures that interest rate futures prices are set correctly. 
D)  ensures that currency futures prices and commodity futures prices are set correctly. 
E)  None of the options are correct.

Question 10

Which of the following is(are) example(s) of interest rate futures contracts?

Accepted Answer

A)  Corporate bonds 
B)  Treasury bonds 
C)  Eurodollars 
D)  Treasury bonds and Eurodollars 
E)  Corporate bonds and Treasury bonds 
A)  Corporate bonds 
B)  Treasury bonds 
C)  Eurodollars 
D)  Treasury bonds and Eurodollars 
E)  Corporate bonds and Treasury bonds

Question 11

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $\begin{array}{lc}
  \text {  Portfolio Value} &\$ \quad \text { 1million } \
 \text {  Portfolio's Beta} &0.60\
 \text { Current S\&P500 value } &1400\
 \text {Anticipated S\&P500 Value  } &1200\
\end{array}$

How many contracts should you buy or sell to hedge your position? Allow fractions of contracts in your answer.

Accepted Answer

A)  sell 1.714 
B)  buy 1.714 
C)  sell 4.236 
D)  buy 4.236 
E)  sell 11.235 
A)  sell 1.714 
B)  buy 1.714 
C)  sell 4.236 
D)  buy 4.236 
E)  sell 11.235

Question 12

If a stock index futures contract is overpriced, you would exploit this situation by

Accepted Answer

A)  selling both the stock index futures and the stocks in the index. 
B)  selling the stock index futures and simultaneously buying the stocks in the index. 
C)  buying both the stock index futures and the stocks in the index. 
D)  buying the stock index futures and selling the stocks in the index. 
E)  None of the options are correct. 
A)  selling both the stock index futures and the stocks in the index. 
B)  selling the stock index futures and simultaneously buying the stocks in the index. 
C)  buying both the stock index futures and the stocks in the index. 
D)  buying the stock index futures and selling the stocks in the index. 
E)  None of the options are correct.

Question 13

What is the dollar value of a Mini-Dow futures contract with a listed price of 27,150?

Accepted Answer

A)  $54,145 
B)  $135,750 
C)  $157,500 
D)  $51,450 
A)  $54,145 
B)  $135,750 
C)  $157,500 
D)  $51,450

Question 14

Which one of the following stock index futures has a multiplier of $100 times the index value?

Accepted Answer

A)  CAC 40 
B)  S&P 500 Index 
C)  Nikkei 
D)  DAX-30 
E)  NASDAQ 100 
A)  CAC 40 
B)  S&P 500 Index 
C)  Nikkei 
D)  DAX-30 
E)  NASDAQ 100

Question 15

Consider the following: $\begin{array}{lc}
  \text { Risk-free rate in the United States } & \text {  0.04 / year } \
 \text { Risk-free rate in Australia } & \text {   0.03 /  year} \
  \text { Spot exchange rate } &1.67A\$/\$\
\end{array}$

Assume the current market futures price is 1.66 A$/$. You borrow 167,000 A$, convert the proceeds to U.S. dollars, and invest them in the U.S. at the risk-free rate. You simultaneously enter a contract to purchase 170,340 A$ at the current futures price (maturity of 1 year). What would be your profit (loss)?

Accepted Answer

A)  Profit of 630 A$ 
B)  Loss of 2300 A$ 
C)  Profit of 2300 A$ 
D)  Loss of 630 A$ 
A)  Profit of 630 A$ 
B)  Loss of 2300 A$ 
C)  Profit of 2300 A$ 
D)  Loss of 630 A$

Question 16

Suppose that the risk-free rates in the United States and in the United Kingdom are 6% and 4%, respectively. The spot exchange rate between the dollar and the pound is $1.60/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.

Accepted Answer

A)  $1.60/BP 
B)  $1.70/BP 
C)  $1.66/BP 
D)  $1.63/BP 
E)  $1.57/BP 
A)  $1.60/BP 
B)  $1.70/BP 
C)  $1.66/BP 
D)  $1.63/BP 
E)  $1.57/BP

Question 17

Suppose that the risk-free rates in the United States and in Canada are 5% and 3%, respectively. The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/C$. What should the futures price of the C$ for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.

Accepted Answer

A)  $1.00/C$ 
B)  $0.82/C$ 
C)  $0.88/C$ 
D)  $0.78/C$ 
E)  $1.22/C$ 
A)  $1.00/C$ 
B)  $0.82/C$ 
C)  $0.88/C$ 
D)  $0.78/C$ 
E)  $1.22/C$

Exam 23: Futures, Swaps, and Risk Management

Which one of the following stock index futures has a multiplier of 10 euros times the index?

Trading in stock index futures

If covered interest arbitrage opportunities exist,

Consider the following: CE Now Risk-free rate in the United States 0.04 / year Risk-free rate in Australia 0.03 / year Spot exchange rate 1.67A \/ \ What should be the proper futures price for a 1-year contract?

Which two indices had the lowest correlation between them during the 2014-2018 period?

What is the dollar value of a Mini-Dow futures contract with a listed price of 31,630?

Consider the following: Risk-free rate in the United States 0.04 / year Risk-free rate in Australia 0.03 / year Spot exchange rate 1.67A \/ \ If the market futures price is 1.69 A$/$, how could you arbitrage?

Credit risk in the swap market

Covered interest arbitrage

Which of the following is(are) example(s) of interest rate futures contracts?

If a stock index futures contract is overpriced, you would exploit this situation by

What is the dollar value of a Mini-Dow futures contract with a listed price of 27,150?

Which one of the following stock index futures has a multiplier of $100 times the index value?

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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