Question 1

The counterparty of someone buying a futures contract on the Chicago Board of Trade is

Accepted Answer

A)  the Chicago Board of Trade. 
B)  a hedger. 
C)  a speculator. 
D)  a trader. 
A)  the Chicago Board of Trade. 
B)  a hedger. 
C)  a speculator. 
D)  a trader.

Question 2

Spot transactions

Accepted Answer

A)  involve immediate settlement. 
B)  may only take place in face-to-face trading. 
C)  take place on-the-spot, rather than on an organized exchange. 
D)  are relatively unimportant in financial markets. 
A)  involve immediate settlement. 
B)  may only take place in face-to-face trading. 
C)  take place on-the-spot, rather than on an organized exchange. 
D)  are relatively unimportant in financial markets.

Question 3

Futures trading has traditionally been conducted by

Accepted Answer

A)  the New York Stock Exchange. 
B)  the Chicago Board of Trade and the New York Mercantile Exchange. 
C)  the London Stock Exchange. 
D)  the Omaha Grain Exchange. 
A)  the New York Stock Exchange. 
B)  the Chicago Board of Trade and the New York Mercantile Exchange. 
C)  the London Stock Exchange. 
D)  the Omaha Grain Exchange.

Question 4

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 5

Options traded on exchanges are known as

Accepted Answer

A)  listed options. 
B)  exchange traded options. 
C)  call options. 
D)  put options. 
A)  listed options. 
B)  exchange traded options. 
C)  call options. 
D)  put options.

Question 6

Hedgers are primarily interested in

Accepted Answer

A)  betting on anticipated changes in prices. 
B)  reducing their exposure to the risk of price fluctuations. 
C)  increasing market liquidity. 
D)  reducing the spread between bid and ask prices on bonds. 
A)  betting on anticipated changes in prices. 
B)  reducing their exposure to the risk of price fluctuations. 
C)  increasing market liquidity. 
D)  reducing the spread between bid and ask prices on bonds.

Question 7

Speculators are primarily interested in

Accepted Answer

A)  betting on anticipated changes in prices. 
B)  reducing their exposure to the risk of price fluctuations. 
C)  increasing market liquidity. 
D)  reducing the spread between bid and ask prices on bonds. 
A)  betting on anticipated changes in prices. 
B)  reducing their exposure to the risk of price fluctuations. 
C)  increasing market liquidity. 
D)  reducing the spread between bid and ask prices on bonds.

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

Forward transactions

Accepted Answer

A)  provide substantial liquidity. 
B)  entail small information costs. 
C)  provide risk sharing. 
D)  provide reduced tax payments. 
A)  provide substantial liquidity. 
B)  entail small information costs. 
C)  provide risk sharing. 
D)  provide reduced tax payments.

Question 10

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 11

Suppose you purchase a call option with a strike price of $85 for an options price of $10 How much profit will you earn if you exercise it when the price is $100?

Accepted Answer

You will earn $15 mi

Question 12

Southwest Airlines relies on jet fuel to operate its planes.If it chooses to hedge against future changes in fuel prices,what positions (long or short)will it take in the spot and futures markets?

Accepted Answer

Southwest will take

Question 13

A futures contract is

Accepted Answer

A)  an agreement that specifies the delivery of a commodity or financial instrument at an agreed-upon future date at a currently agreed-upon price. 
B)  an agreement that specifies the delivery of a commodity or financial instrument at an agreed-upon future date, with the price to be negotiated at the time of delivery. 
C)  an agreement that specifies the delivery of a commodity or financial instrument at a currently agreed-upon price, with date of delivery to be negotiated subsequently. 
D)  an agreement that specifies the delivery of a commodity or financial instrument, with the price and date of delivery to be negotiated subsequently. 
A)  an agreement that specifies the delivery of a commodity or financial instrument at an agreed-upon future date at a currently agreed-upon price. 
B)  an agreement that specifies the delivery of a commodity or financial instrument at an agreed-upon future date, with the price to be negotiated at the time of delivery. 
C)  an agreement that specifies the delivery of a commodity or financial instrument at a currently agreed-upon price, with date of delivery to be negotiated subsequently. 
D)  an agreement that specifies the delivery of a commodity or financial instrument, with the price and date of delivery to be negotiated subsequently.

Question 14

The choice between futures and options

Accepted Answer

A)  depends on whether the underlying instrument is a debt instrument or an equity. 
B)  reflects a trade-off between the higher cost of using options and the extra insurance benefits that options provide. 
C)  reflects a trade-off between the higher cost of using futures and the extra insurance benefits that futures provide. 
D)  reflects a trade-off between the greater risk from using options and the extra insurance benefits that options provide. 
A)  depends on whether the underlying instrument is a debt instrument or an equity. 
B)  reflects a trade-off between the higher cost of using options and the extra insurance benefits that options provide. 
C)  reflects a trade-off between the higher cost of using futures and the extra insurance benefits that futures provide. 
D)  reflects a trade-off between the greater risk from using options and the extra insurance benefits that options provide.

Question 15

An order from an exchange for a seller to add enough funds to meet the minimum balance in a margin account is called a

Accepted Answer

A)  maintenance margin. 
B)  margin option. 
C)  margin call. 
D)  margin put. 
A)  maintenance margin. 
B)  margin option. 
C)  margin call. 
D)  margin put.

Question 16

When reading an options listing for a company like General Motors,the further away the expiration date

Accepted Answer

A)  the higher the price of the call option and the lower the price of the put option. 
B)  the lower the price of the call option and the higher the price of the put option. 
C)  the higher the price of both the call option and the put option. 
D)  the lower the price of both the call option and the put option. 
A)  the higher the price of the call option and the lower the price of the put option. 
B)  the lower the price of the call option and the higher the price of the put option. 
C)  the higher the price of both the call option and the put option. 
D)  the lower the price of both the call option and the put option.

Question 17

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 counterparties 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 counterparties 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 18

If you sell a futures contract for U.S.Treasury bills and on the delivery date the interest rate of T-bills is higher 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 19

Forward contracts

Accepted Answer

A)  are highly liquid. 
B)  entail small information costs. 
C)  provide little risk sharing. 
D)  are subject to default risk. 
A)  are highly liquid. 
B)  entail small information costs. 
C)  provide little risk sharing. 
D)  are subject to default risk.

Question 20

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.

The counterparty of someone buying a futures contract on the Chicago Board of Trade is

Spot transactions

Futures trading has traditionally been conducted by

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

Options traded on exchanges are known as

Hedgers are primarily interested in

Speculators are primarily interested in

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

Forward transactions

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

Suppose you purchase a call option with a strike price of $85 for an options price of $10 How much profit will you earn if you exercise it when the price is $100?

Southwest Airlines relies on jet fuel to operate its planes.If it chooses to hedge against future changes in fuel prices,what positions (long or short)will it take in the spot and futures markets?

A futures contract is

The choice between futures and options

An order from an exchange for a seller to add enough funds to meet the minimum balance in a margin account is called a

When reading an options listing for a company like General Motors,the further away the expiration date

A swap is

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

Forward contracts

On the day of delivery

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

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Exam 7: Derivatives and Derivative Markets

The counterparty of someone buying a futures contract on the Chicago Board of Trade is

Spot transactions

Futures trading has traditionally been conducted by

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

Options traded on exchanges are known as

Hedgers are primarily interested in

Speculators are primarily interested in

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

Forward transactions

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

Suppose you purchase a call option with a strike price of $85 for an options price of $10 How much profit will you earn if you exercise it when the price is $100?

Southwest Airlines relies on jet fuel to operate its planes.If it chooses to hedge against future changes in fuel prices,what positions (long or short)will it take in the spot and futures markets?

A futures contract is

The choice between futures and options

An order from an exchange for a seller to add enough funds to meet the minimum balance in a margin account is called a

When reading an options listing for a company like General Motors,the further away the expiration date

A swap is

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

Forward contracts

On the day of delivery

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