Question 1

Which of the following referred to derivatives as "financial weapons of mass destruction"?

Accepted Answer

A)  Ben Bernanke 
B)  Barack Obama 
C)  Warren Buffett 
D)  Michael Lewis 
A)  Ben Bernanke 
B)  Barack Obama 
C)  Warren Buffett 
D)  Michael Lewis

Question 2

In 2016,individual investors for the first time

Accepted Answer

A)  made up more than 10% of the volume of daily trading of oil futures on the Chicago Mercantile Exchange. 
B)  were prohibited from trading in oil futures. 
C)  were allowed to trade in oil futures. 
D)  surpassed high-income investors in the volume of trading of oil futures on the Chicago Mercantile Exchange. 
A)  made up more than 10% of the volume of daily trading of oil futures on the Chicago Mercantile Exchange. 
B)  were prohibited from trading in oil futures. 
C)  were allowed to trade in oil futures. 
D)  surpassed high-income investors in the volume of trading of oil futures on the Chicago Mercantile Exchange.

Question 3

The seller of a futures contract

Accepted Answer

A)  assumes the short position. 
B)  assumes the long position. 
C)  has the obligation to receive the underlying financial instrument at the specified future date. 
D)  is expecting the price of the underlying financial instrument to rise. 
A)  assumes the short position. 
B)  assumes the long position. 
C)  has the obligation to receive the underlying financial instrument at the specified future date. 
D)  is expecting the price of the underlying financial instrument to rise.

Question 4

Which of the following statements regarding futures is TRUE?

Accepted Answer

A)  Trading futures contracts on agricultural and mineral commodities makes up a majority of all trading. 
B)  Trading in financial futures involves more transactions than trading in commodity futures. 
C)  Futures trading is allowed only for financial assets. 
D)  Futures trading is allowed only for commodities. 
A)  Trading futures contracts on agricultural and mineral commodities makes up a majority of all trading. 
B)  Trading in financial futures involves more transactions than trading in commodity futures. 
C)  Futures trading is allowed only for financial assets. 
D)  Futures trading is allowed only for commodities.

Question 5

The primary difference between an American and a European option is

Accepted Answer

A)  American options must be exercised on the expiration date. 
B)  European options must be exercised on the expiration date. 
C)  American options may be exercised at any point up until the expiration date. 
D)  European options may be exercised at any point up until the expiration date. 
A)  American options must be exercised on the expiration date. 
B)  European options must be exercised on the expiration date. 
C)  American options may be exercised at any point up until the expiration date. 
D)  European options may be exercised at any point up until the expiration date.

Question 6

Which of the following best characterizes the profit of a buyer of a futures contract?

Accepted Answer

A)  spot price at settlement minus futures price at purchase 
B)  futures price at settlement minus spot price at purchase 
C)  futures price at purchase minus spot price at settlement 
D)  spot price at purchase minus futures price at settlement 
A)  spot price at settlement minus futures price at purchase 
B)  futures price at settlement minus spot price at purchase 
C)  futures price at purchase minus spot price at settlement 
D)  spot price at purchase minus futures price at settlement

Question 7

Forward transactions

Accepted Answer

A)  allow savers and borrowers to conduct a transaction now and settle in the future. 
B)  allow savers and borrowers to postpone a transaction from now to the future. 
C)  always involve increased risk compared with spot transactions. 
D)  may not be conducted on organized exchanges. 
A)  allow savers and borrowers to conduct a transaction now and settle in the future. 
B)  allow savers and borrowers to postpone a transaction from now to the future. 
C)  always involve increased risk compared with spot transactions. 
D)  may not be conducted on organized exchanges.

Question 8

Which of the following factors would tend to increase the size of the premium on an options contract?

Accepted Answer

A)  The option is near its expiration date. 
B)  The current default-risk-free interest rate is high. 
C)  The price volatility of the underlying asset is low. 
D)  The option is far away from its expiration date. 
A)  The option is near its expiration date. 
B)  The current default-risk-free interest rate is high. 
C)  The price volatility of the underlying asset is low. 
D)  The option is far away from its expiration date.

Question 9

If the price of a futures contract increases,then

Accepted Answer

A)  the exchange will collect the amount of the increase from the seller of the contract and transfer it to the account of the buyer of the contract. 
B)  the exchange will collect the amount of the increase from the buyer of the contract and transfer it to the account of the seller of the contract. 
C)  the exchange will collect the amount of the increase from both the buyer and the seller and place it in an escrow account until the delivery date. 
D)  the additional funds will not be required from either the buyer or the seller until the delivery date. 
A)  the exchange will collect the amount of the increase from the seller of the contract and transfer it to the account of the buyer of the contract. 
B)  the exchange will collect the amount of the increase from the buyer of the contract and transfer it to the account of the seller of the contract. 
C)  the exchange will collect the amount of the increase from both the buyer and the seller and place it in an escrow account until the delivery date. 
D)  the additional funds will not be required from either the buyer or the seller until the delivery date.

Question 10

Swaps differ from futures and options in all of the following ways EXCEPT

Accepted Answer

A)  swaps are intended to reduce the risk faced by participants. 
B)  swaps have more flexibility. 
C)  swaps have more privacy. 
D)  swaps have less regulation. 
A)  swaps are intended to reduce the risk faced by participants. 
B)  swaps have more flexibility. 
C)  swaps have more privacy. 
D)  swaps have less regulation.

Question 11

What does it mean to "cover a short"?

Accepted Answer

If the price of an asset in wh

Question 12

Using forward transactions allows

Accepted Answer

A)  holders of common stock to lock in future dividend payments. 
B)  the federal government to stabilize fluctuations in tax receipts. 
C)  corporations to reduce problems arising from future fluctuations in their dividend payments. 
D)  both buyers and sellers to reduce risks associated with price fluctuations. 
A)  holders of common stock to lock in future dividend payments. 
B)  the federal government to stabilize fluctuations in tax receipts. 
C)  corporations to reduce problems arising from future fluctuations in their dividend payments. 
D)  both buyers and sellers to reduce risks associated with price fluctuations.

Question 13

Speculators in derivatives 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 14

Financial futures contracts are regulated by

Accepted Answer

A)  the Commodity Futures Trading Commission. 
B)  the Federal Trade Commission. 
C)  the Interstate Commerce Commission. 
D)  the Options and Futures Commission. 
A)  the Commodity Futures Trading Commission. 
B)  the Federal Trade Commission. 
C)  the Interstate Commerce Commission. 
D)  the Options and Futures Commission.

Question 15

Forward contracts are often illiquid because

Accepted Answer

A)  any capital gains on them are heavily taxed, making investors reluctant to sell them. 
B)  government regulation has not provided for a secondary market in them. 
C)  they generally contain terms specific to the particular buyer and seller. 
D)  the brokerage fees involved in buying and selling them are very high. 
A)  any capital gains on them are heavily taxed, making investors reluctant to sell them. 
B)  government regulation has not provided for a secondary market in them. 
C)  they generally contain terms specific to the particular buyer and seller. 
D)  the brokerage fees involved in buying and selling them are very high.

Question 16

The futures price

Accepted Answer

A)  reflects traders' expectations of the spot price on the day of delivery. 
B)  is always above the spot price on the day of delivery. 
C)  is always below the spot price on the day of delivery. 
D)  is always equal to the spot price at every point in time. 
A)  reflects traders' expectations of the spot price on the day of delivery. 
B)  is always above the spot price on the day of delivery. 
C)  is always below the spot price on the day of delivery. 
D)  is always equal to the spot price at every point in time.

Question 17

All of the following are steps involved in basic currency swaps EXCEPT

Accepted Answer

A)  counterparties exchange the net interest at the end of the swap. 
B)  the parties exchange principals in two currencies. 
C)  the parties exchange periodic interest payments over the life of the agreement. 
D)  the parties exchange the principal amount at the end of the agreement. 
A)  counterparties exchange the net interest at the end of the swap. 
B)  the parties exchange principals in two currencies. 
C)  the parties exchange periodic interest payments over the life of the agreement. 
D)  the parties exchange the principal amount at the end of the agreement.

Question 18

Why must the spot price equal the futures price on the settlement date?

Accepted Answer

If there were differ

Question 19

Describe two useful purposes served by speculators in derivatives markets.

Accepted Answer

First,hedgers are able to transfer risk

Question 20

How can a bond investor hedge against a possible bear market in bonds?

Accepted Answer

A)  sell futures contracts on Treasury notes 
B)  buy futures contracts on Treasury notes 
C)  going long in the spot market 
D)  going short in the spot market 
A)  sell futures contracts on Treasury notes 
B)  buy futures contracts on Treasury notes 
C)  going long in the spot market 
D)  going short in the spot market

Which of the following referred to derivatives as "financial weapons of mass destruction"?

In 2016,individual investors for the first time

The seller of a futures contract

Which of the following statements regarding futures is TRUE?

The primary difference between an American and a European option is

Which of the following best characterizes the profit of a buyer of a futures contract?

Forward transactions

Which of the following factors would tend to increase the size of the premium on an options contract?

If the price of a futures contract increases,then

Swaps differ from futures and options in all of the following ways EXCEPT

What does it mean to "cover a short"?

Using forward transactions allows

Speculators in derivatives markets

Financial futures contracts are regulated by

Forward contracts are often illiquid because

The futures price

All of the following are steps involved in basic currency swaps EXCEPT

Why must the spot price equal the futures price on the settlement date?

Describe two useful purposes served by speculators in derivatives markets.

How can a bond investor hedge against a possible bear market in bonds?

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

Which of the following referred to derivatives as "financial weapons of mass destruction"?

In 2016,individual investors for the first time

The seller of a futures contract

Which of the following statements regarding futures is TRUE?

The primary difference between an American and a European option is

Which of the following best characterizes the profit of a buyer of a futures contract?

Forward transactions

Which of the following factors would tend to increase the size of the premium on an options contract?

If the price of a futures contract increases,then

Swaps differ from futures and options in all of the following ways EXCEPT

What does it mean to "cover a short"?

Using forward transactions allows

Speculators in derivatives markets

Financial futures contracts are regulated by

Forward contracts are often illiquid because

The futures price

All of the following are steps involved in basic currency swaps EXCEPT

Why must the spot price equal the futures price on the settlement date?

Describe two useful purposes served by speculators in derivatives markets.

How can a bond investor hedge against a possible bear market in bonds?

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