Question 1

When talking about forward contracts,the date on which the contracted delivery must take place is called the

Accepted Answer

A)  settlement date. 
B)  counterparty date. 
C)  forward date. 
D)  spot date. 
A)  settlement date. 
B)  counterparty date. 
C)  forward date. 
D)  spot date. A

Question 2

Marking to market involves

Accepted Answer

A)  changing the futures price to the spot price each day. 
B)  engaging in arbitrage so as to reduce the risk involved with futures contracts. 
C)  crediting or debiting the margin account based on the net change in the value of the futures contract. 
D)  updating the futures price after the market closes each day. 
A)  changing the futures price to the spot price each day. 
B)  engaging in arbitrage so as to reduce the risk involved with futures contracts. 
C)  crediting or debiting the margin account based on the net change in the value of the futures contract. 
D)  updating the futures price after the market closes each day. C

Question 3

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

Accepted Answer

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

Question 4

When you borrow stock from a broker and sell it now with plans to buy it back after it drops in price,you are engaging in a(n)

Accepted Answer

A)  margin call. 
B)  European option. 
C)  American option. 
D)  short sale. 
A)  margin call. 
B)  European option. 
C)  American option. 
D)  short sale.

Question 5

If insurance is available on an activity

Accepted Answer

A)  more of that activity will occur. 
B)  less of that activity will occur. 
C)  investors will be less likely to hedge. 
D)  it increases the risk of engaging in that activity. 
A)  more of that activity will occur. 
B)  less of that activity will occur. 
C)  investors will be less likely to hedge. 
D)  it increases the risk of engaging in that activity.

Question 6

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 without eliminating the chance to profit from a decline in the cost of funds by

Accepted Answer

A)  buying futures contracts on Treasury bills. 
B)  selling futures contracts on Treasury bills. 
C)  buying put options on Treasury bills. 
D)  buying call options on Treasury bills. 
A)  buying futures contracts on Treasury bills. 
B)  selling futures contracts on Treasury bills. 
C)  buying put options on Treasury bills. 
D)  buying call options on Treasury bills.

Question 7

In recent decades

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 8

Why do futures have lower information costs and higher liquidity than forward contracts?

Accepted Answer

The exchange stands as a counterparty to

Question 9

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 10

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 11

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 12

The initial deposit required by a buyer or seller of a futures contract is known as

Accepted Answer

A)  credit. 
B)  margin requirement. 
C)  debit. 
D)  marking. 
A)  credit. 
B)  margin requirement. 
C)  debit. 
D)  marking.

Question 13

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 option. 
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 option.

Question 14

The terms of futures contracts traded in the United States are

Accepted Answer

A)  standardized as to amount or value, but not as to settlement dates. 
B)  standardized as to settlement dates, 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 settlement dates. 
A)  standardized as to amount or value, but not as to settlement dates. 
B)  standardized as to settlement dates, 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 settlement dates.

Question 15

A stock option is said to be "out of the money" if the

Accepted Answer

A)  strike price equals the exercise price. 
B)  stock price equals the strike price. 
C)  strike price exceeds the stock price. 
D)  stock price exceeds the strike price. 
A)  strike price equals the exercise price. 
B)  stock price equals the strike price. 
C)  strike price exceeds the stock price. 
D)  stock price exceeds the strike price.

Question 16

Forward transactions would be useful to

Accepted Answer

A)  a government wanting to know the size of its future debt. 
B)  a household wanting to reduce its future tax liability. 
C)  a business wanting to know the cost of its funds on future loans. 
D)  a business wanting to expand its operations in overseas markets. 
A)  a government wanting to know the size of its future debt. 
B)  a household wanting to reduce its future tax liability. 
C)  a business wanting to know the cost of its funds on future loans. 
D)  a business wanting to expand its operations in overseas markets.

Question 17

Suppose you purchase a call option to buy IBM common stock at $35 per share in September.The current price of IBM is $37 and the option premium is $4.What is the intrinsic value of the option? As the expiration date on the option approaches,what will happen to the size of the option premium?

Accepted Answer

The intrinsic value of the option is the

Question 18

All of the following describe the market for credit default swaps on mortgage-backed securities in the mid-2000s EXCEPT

Accepted Answer

A)  an increasing number of buyers were speculators. 
B)  AIG apparently underestimated the risk involved with mortgage-backed securities. 
C)  the volume of credit default swaps was too low making it difficult to assess their value. 
D)  payments by buyers were too low relative to risk. 
A)  an increasing number of buyers were speculators. 
B)  AIG apparently underestimated the risk involved with mortgage-backed securities. 
C)  the volume of credit default swaps was too low making it difficult to assess their value. 
D)  payments by buyers were too low relative to risk.

Question 19

An options contract

Accepted Answer

A)  confers the rights to buy or sell an underlying asset at a predetermined price by a predetermined time. 
B)  is another name for a futures contract. 
C)  may be written for debt instruments, but not for equities. 
D)  may be written for equities, but not for debt instruments. 
A)  confers the rights to buy or sell an underlying asset at a predetermined price by a predetermined time. 
B)  is another name for a futures contract. 
C)  may be written for debt instruments, but not for equities. 
D)  may be written for equities, but not for debt instruments.

Question 20

In derivative markets,trade takes place in

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 that derive their value from underlying assets. 
D)  assets which are not allowed to be traded on organized exchanges. 
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 that derive their value from underlying assets. 
D)  assets which are not allowed to be traded on organized exchanges.

When talking about forward contracts,the date on which the contracted delivery must take place is called the

Marking to market involves

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

When you borrow stock from a broker and sell it now with plans to buy it back after it drops in price,you are engaging in a(n)

If insurance is available on an activity

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 without eliminating the chance to profit from a decline in the cost of funds by

In recent decades

Why do futures have lower information costs and higher liquidity than forward contracts?

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

Derivative instruments are

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

The initial deposit required by a buyer or seller of a futures contract is known as

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

The terms of futures contracts traded in the United States are

A stock option is said to be "out of the money" if the

Forward transactions would be useful to

Suppose you purchase a call option to buy IBM common stock at $35 per share in September.The current price of IBM is $37 and the option premium is $4.What is the intrinsic value of the option? As the expiration date on the option approaches,what will happen to the size of the option premium?

All of the following describe the market for credit default swaps on mortgage-backed securities in the mid-2000s EXCEPT

An options contract

In derivative markets,trade takes place in

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 7: Derivatives and Derivative Markets

When talking about forward contracts,the date on which the contracted delivery must take place is called the

Marking to market involves

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

When you borrow stock from a broker and sell it now with plans to buy it back after it drops in price,you are engaging in a(n)

If insurance is available on an activity

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 without eliminating the chance to profit from a decline in the cost of funds by

In recent decades

Why do futures have lower information costs and higher liquidity than forward contracts?

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

Derivative instruments are

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

The initial deposit required by a buyer or seller of a futures contract is known as

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

The terms of futures contracts traded in the United States are

A stock option is said to be "out of the money" if the

Forward transactions would be useful to

Suppose you purchase a call option to buy IBM common stock at $35 per share in September.The current price of IBM is $37 and the option premium is $4.What is the intrinsic value of the option? As the expiration date on the option approaches,what will happen to the size of the option premium?

All of the following describe the market for credit default swaps on mortgage-backed securities in the mid-2000s EXCEPT

An options contract

In derivative markets,trade takes place in

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters