Question 1

The seller of a futures contract

Accepted Answer

A)  assumes the long position. 
B)  has the obligation to deliver the underlying financial instrument at the specified date. 
C)  has the obligation to receive the underlying financial instrument at the specified future date. 
D)  may, at his or her option, deliver or receive the underlying financial instrument at the specified date. 
A)  assumes the long position. 
B)  has the obligation to deliver the underlying financial instrument at the specified date. 
C)  has the obligation to receive the underlying financial instrument at the specified future date. 
D)  may, at his or her option, deliver or receive the underlying financial instrument at the specified date.

Question 2

During the financial crisis of 2007-2009,the VIX

Accepted Answer

A)  remained relatively stable. 
B)  fell to zero. 
C)  recorded negative values for the first time in history. 
D)  reached a level of 80. 
A)  remained relatively stable. 
B)  fell to zero. 
C)  recorded negative values for the first time in history. 
D)  reached a level of 80.

Question 3

Which of the following is NOT a benefit of derivatives?

Accepted Answer

A)  risk sharing 
B)  guaranteed minimum profit 
C)  liquidity 
D)  information services 
A)  risk sharing 
B)  guaranteed minimum profit 
C)  liquidity 
D)  information services

Question 4

Investors who buy and sell oil derivatives with the hope of profiting from price changes in crude oil are known as

Accepted Answer

A)  arbitrageurs. 
B)  speculators. 
C)  wildcatters. 
D)  profiteers. 
A)  arbitrageurs. 
B)  speculators. 
C)  wildcatters. 
D)  profiteers.

Question 5

Which best describes a credit default swap?

Accepted Answer

A)  It is designed to reduce interest-rate risk. 
B)  The issuer receives payments from the buyer in return for agreeing to make payments to the buyer if the security goes into default. 
C)  Issuers are taking out insurance in case of default. 
D)  It represents a way for the issuer to establish its creditworthiness. 
A)  It is designed to reduce interest-rate risk. 
B)  The issuer receives payments from the buyer in return for agreeing to make payments to the buyer if the security goes into default. 
C)  Issuers are taking out insurance in case of default. 
D)  It represents a way for the issuer to establish its creditworthiness.

Question 6

Which of the following statements about the presence of speculators in futures markets is correct?

Accepted Answer

A)  Their main objective is to reduce their exposure to risk. 
B)  They aid hedgers by increasing the liquidity in futures markets. 
C)  They make it difficult for hedgers to find someone to take the opposite side of their positions. 
D)  Once a futures market participant is known to be a speculator, he or she is no longer allowed to participate in the market. 
A)  Their main objective is to reduce their exposure to risk. 
B)  They aid hedgers by increasing the liquidity in futures markets. 
C)  They make it difficult for hedgers to find someone to take the opposite side of their positions. 
D)  Once a futures market participant is known to be a speculator, he or she is no longer allowed to participate in the market.

Question 7

The fee charged by the seller of an option is referred to as the

Accepted Answer

A)  market price. 
B)  option premium. 
C)  futures fee. 
D)  call price. 
A)  market price. 
B)  option premium. 
C)  futures fee. 
D)  call price.

Question 8

A common estimate of individuals who actively trade stocks or derivatives is that

Accepted Answer

A)  an equal number earn a profit as suffer a loss. 
B)  more than 75% either break even or earn a profit. 
C)  twice as many suffer losses as earn profits. 
D)  less than 5% are able to break even. 
A)  an equal number earn a profit as suffer a loss. 
B)  more than 75% either break even or earn a profit. 
C)  twice as many suffer losses as earn profits. 
D)  less than 5% are able to break even.

Question 9

What are the steps involved in using options for a short sale of a stock?

Accepted Answer

With a short sale,you borrow t

Question 10

Standardization of derivative contracts

Accepted Answer

A)  increases their liquidity. 
B)  is the rule with respect to contracts whose underlying asset is a financial security, but not for contracts whose underlying asset is a commodity. 
C)  is the rule with respect to contracts whose underlying asset is a commodity, but not for contracts whose underlying asset is a financial asset. 
D)  has been proposed many times by financial analysts, but has not yet been carried out by the SEC. 
A)  increases their liquidity. 
B)  is the rule with respect to contracts whose underlying asset is a financial security, but not for contracts whose underlying asset is a commodity. 
C)  is the rule with respect to contracts whose underlying asset is a commodity, but not for contracts whose underlying asset is a financial asset. 
D)  has been proposed many times by financial analysts, but has not yet been carried out by the SEC.

Question 11

Compare the rights and obligations of buyers and sellers of futures contracts with the rights of buyers and sellers of options contracts.

Accepted Answer

Buyers and sellers of futures contracts

Question 12

An advantage of a swap over futures and options is that

Accepted Answer

A)  they can be written for long periods. 
B)  they are more liquid. 
C)  they carry less default risk. 
D)  there is no need to assess the creditworthiness of participants. 
A)  they can be written for long periods. 
B)  they are more liquid. 
C)  they carry less default risk. 
D)  there is no need to assess the creditworthiness of participants.

Question 13

Why do investors hedge using futures contracts?

Accepted Answer

A)  they are seeking to increase liquidity 
B)  they are willing to pay for a reduction in risk 
C)  in order to provide a counterparty to speculators 
D)  they are more flexible than forward contracts 
A)  they are seeking to increase liquidity 
B)  they are willing to pay for a reduction in risk 
C)  in order to provide a counterparty to speculators 
D)  they are more flexible than forward contracts

Question 14

Warren Buffet argued that ________ contributed significantly to the financial crisis.

Accepted Answer

A)  all derivatives 
B)  only derivatives that are exchange traded 
C)  some derivatives that are not exchange traded 
D)  virtually no derivatives 
A)  all derivatives 
B)  only derivatives that are exchange traded 
C)  some derivatives that are not exchange traded 
D)  virtually no derivatives

Question 15

The existence of counterparty risk

Accepted Answer

A)  has no effect on the contracting parties. 
B)  is disallowed under current government regulations. 
C)  results in information costs for buyers and sellers when analyzing the potential creditworthiness of potential trading partners. 
D)  reduces the risk introduced by forward contracts. 
A)  has no effect on the contracting parties. 
B)  is disallowed under current government regulations. 
C)  results in information costs for buyers and sellers when analyzing the potential creditworthiness of potential trading partners. 
D)  reduces the risk introduced by forward contracts.

Question 16

The interest rate at which international banks loan to each other is called the

Accepted Answer

A)  LIBOR. 
B)  federal funds rate. 
C)  prime rate. 
D)  international bank lending rate. 
A)  LIBOR. 
B)  federal funds rate. 
C)  prime rate. 
D)  international bank lending rate.

Question 17

All of the following are cited by Warren Buffet as problems with derivatives not traded on exchanges EXCEPT

Accepted Answer

A)  they are thinly traded which makes it difficult to determine their value. 
B)  firms do not set aside reserves against potential losses. 
C)  they involve substantial counterparty risk. 
D)  they were not flexible enough due to lack of standardization. 
A)  they are thinly traded which makes it difficult to determine their value. 
B)  firms do not set aside reserves against potential losses. 
C)  they involve substantial counterparty risk. 
D)  they were not flexible enough due to lack of standardization.

Question 18

The role of the Commodity Futures Trading Commission is to

Accepted Answer

A)  set the prices of futures contracts. 
B)  operate the Chicago Mercantile Exchange. 
C)  operate the Chicago Board of Trade. 
D)  monitor potential price manipulation in futures trading. 
A)  set the prices of futures contracts. 
B)  operate the Chicago Mercantile Exchange. 
C)  operate the Chicago Board of Trade. 
D)  monitor potential price manipulation in futures trading.

Question 19

Which of the following is NOT a regulation applying to swap dealers as a result of the Dodd-Frank Act?

Accepted Answer

A)  Swaps must be traded through a clearinghouse. 
B)  The value of swap contracts are limited to no more than $8 billion. 
C)  Dealers are required to deposit a fraction of the value of the contract with the clearinghouse. 
D)  Data on trades must be publicly available. 
A)  Swaps must be traded through a clearinghouse. 
B)  The value of swap contracts are limited to no more than $8 billion. 
C)  Dealers are required to deposit a fraction of the value of the contract with the clearinghouse. 
D)  Data on trades must be publicly available.

Question 20

Which of the following accurately describes possible positions taken by hedgers?

Accepted Answer

A)  may take a short position in the futures market to offset a long position in the spot market 
B)  may take a short position in the spot market to offset a long position in the futures market 
C)  may take a long position in the spot market to offset a short position in the futures market 
D)  may take a long position in the futures market to offset a long position in the spot market 
A)  may take a short position in the futures market to offset a long position in the spot market 
B)  may take a short position in the spot market to offset a long position in the futures market 
C)  may take a long position in the spot market to offset a short position in the futures market 
D)  may take a long position in the futures market to offset a long position in the spot market

The seller of a futures contract

During the financial crisis of 2007-2009,the VIX

Which of the following is NOT a benefit of derivatives?

Investors who buy and sell oil derivatives with the hope of profiting from price changes in crude oil are known as

Which best describes a credit default swap?

Which of the following statements about the presence of speculators in futures markets is correct?

The fee charged by the seller of an option is referred to as the

A common estimate of individuals who actively trade stocks or derivatives is that

What are the steps involved in using options for a short sale of a stock?

Standardization of derivative contracts

Compare the rights and obligations of buyers and sellers of futures contracts with the rights of buyers and sellers of options contracts.

An advantage of a swap over futures and options is that

Why do investors hedge using futures contracts?

Warren Buffet argued that ________ contributed significantly to the financial crisis.

The existence of counterparty risk

The interest rate at which international banks loan to each other is called the

All of the following are cited by Warren Buffet as problems with derivatives not traded on exchanges EXCEPT

The role of the Commodity Futures Trading Commission is to

Which of the following is NOT a regulation applying to swap dealers as a result of the Dodd-Frank Act?

Which of the following accurately describes possible positions taken by hedgers?

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

The seller of a futures contract

During the financial crisis of 2007-2009,the VIX

Which of the following is NOT a benefit of derivatives?

Investors who buy and sell oil derivatives with the hope of profiting from price changes in crude oil are known as

Which best describes a credit default swap?

Which of the following statements about the presence of speculators in futures markets is correct?

The fee charged by the seller of an option is referred to as the

A common estimate of individuals who actively trade stocks or derivatives is that

What are the steps involved in using options for a short sale of a stock?

Standardization of derivative contracts

Compare the rights and obligations of buyers and sellers of futures contracts with the rights of buyers and sellers of options contracts.

An advantage of a swap over futures and options is that

Why do investors hedge using futures contracts?

Warren Buffet argued that ________ contributed significantly to the financial crisis.

The existence of counterparty risk

The interest rate at which international banks loan to each other is called the

All of the following are cited by Warren Buffet as problems with derivatives not traded on exchanges EXCEPT

The role of the Commodity Futures Trading Commission is to

Which of the following is NOT a regulation applying to swap dealers as a result of the Dodd-Frank Act?

Which of the following accurately describes possible positions taken by hedgers?

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