Question 1

A contract that requires the investor to sell securities on a future date is called a

Accepted Answer

A) short contract. 
B) long contract. 
C) hedge. 
D) micro hedge. 
A) short contract. 
B) long contract. 
C) hedge. 
D) micro hedge.

Question 2

Assume you are holding Treasury securities and have sold futures to hedge against interest-rate risk.If interest rates fall

Accepted Answer

A) the increase in the value of the securities equals the decrease in the value of the futures contracts. 
B) the decrease in the value of the securities equals the increase in the value of the futures contracts. 
C) both the securities and the futures contracts decrease in value. 
D) both the securities and the futures contracts increase in value. 
A) the increase in the value of the securities equals the decrease in the value of the futures contracts. 
B) the decrease in the value of the securities equals the increase in the value of the futures contracts. 
C) both the securities and the futures contracts decrease in value. 
D) both the securities and the futures contracts increase in value.

Question 3

By taking the short position on a futures contract of $100,000 at a price of 115 you are agreeing to ________ a ________ face value security for ________.

Accepted Answer

A) sell;$100,000;$115,000. 
B) sell;$115,000;$100,000. 
C) buy;$100,000;$115,000. 
D) buy;$115,000;$100,000. 
A) sell;$100,000;$115,000. 
B) sell;$115,000;$100,000. 
C) buy;$100,000;$115,000. 
D) buy;$115,000;$100,000.

Question 4

Options on futures contracts are referred to as

Accepted Answer

A) stock options. 
B) futures options. 
C) American options. 
D) individual options. 
A) stock options. 
B) futures options. 
C) American options. 
D) individual options.

Question 5

Suppose that Wells Fargo Home Mortgage sells $10 million worth of mortgage payments to GMAC in exchange for $10 million in auto loan payments.This type of transaction is called a

Accepted Answer

A) credit option. 
B) credit swap. 
C) credit-linked note. 
D) credit default swap. 
A) credit option. 
B) credit swap. 
C) credit-linked note. 
D) credit default swap.

Question 6

To say that the forward market lacks liquidity means that

Accepted Answer

A) forward contracts usually result in losses. 
B) forward contracts cannot be turned into cash. 
C) it may be difficult to make the transaction. 
D) forward contracts cannot be sold for cash. 
A) forward contracts usually result in losses. 
B) forward contracts cannot be turned into cash. 
C) it may be difficult to make the transaction. 
D) forward contracts cannot be sold for cash.

Question 7

The credit derivative that,for a fee,gives the purchaser the right to receive profits that are tied either to the price of an underlying security or to an interest rate is called a

Accepted Answer

A) credit option. 
B) credit swap. 
C) credit-linked note. 
D) credit default swap. 
A) credit option. 
B) credit swap. 
C) credit-linked note. 
D) credit default swap.

Question 8

A call option gives the owner the

Accepted Answer

A) right to sell the underlying security. 
B) obligation to sell the underlying security. 
C) right to buy the underlying security. 
D) obligation to buy the underlying security. 
A) right to sell the underlying security. 
B) obligation to sell the underlying security. 
C) right to buy the underlying security. 
D) obligation to buy the underlying security.

Question 9

What is arbitrage? Explain why arbitrage drives the contract price of futures to the price of the underlying asset on the expiration date,for prices above and below the asset price.

Accepted Answer

Arbitrage is the riskless elimination of

Question 10

All other things held constant,premiums on call options will increase when the

Accepted Answer

A) exercise price falls. 
B) volatility of the underlying asset falls. 
C) term to maturity decreases. 
D) futures price increases. 
A) exercise price falls. 
B) volatility of the underlying asset falls. 
C) term to maturity decreases. 
D) futures price increases.

Question 11

A person who agrees to buy an asset at a future date is going

Accepted Answer

A) long. 
B) short. 
C) back. 
D) ahead. 
A) long. 
B) short. 
C) back. 
D) ahead.

Question 12

To hedge the interest rate risk on $4 million of Treasury bonds with $100,000 futures contracts,you would need to purchase

Accepted Answer

A) 4 contracts. 
B) 20 contracts. 
C) 25 contracts. 
D) 40 contracts. 
A) 4 contracts. 
B) 20 contracts. 
C) 25 contracts. 
D) 40 contracts.

Question 13

When the financial institution is hedging interest-rate risk on its overall portfolio,then the hedge is a

Accepted Answer

A) macro hedge. 
B) micro hedge. 
C) cross hedge. 
D) futures hedge. 
A) macro hedge. 
B) micro hedge. 
C) cross hedge. 
D) futures hedge.

Question 14

A put option gives the owner the

Accepted Answer

A) right to sell the underlying security. 
B) obligation to sell the underlying security. 
C) right to buy the underlying security. 
D) obligation to buy the underlying security. 
A) right to sell the underlying security. 
B) obligation to sell the underlying security. 
C) right to buy the underlying security. 
D) obligation to buy the underlying security.

Question 15

If,for a $1000 premium,you buy a $100,000 call option on bond futures with a strike price of 114,and at the expiration date the price is 110,your ________ is ________.

Accepted Answer

A) profit;$1000 
B) loss;$1000 
C) profit;$3000 
D) loss;$3000 
A) profit;$1000 
B) loss;$1000 
C) profit;$3000 
D) loss;$3000

Question 16

If you sold a short contract on financial futures you hope interest rates

Accepted Answer

A) rise. 
B) fall. 
C) are stable. 
D) fluctuate. 
A) rise. 
B) fall. 
C) are stable. 
D) fluctuate.

Question 17

If Second National Bank has more rate-sensitive assets than rate-sensitive liabilities,it can reduce interest-rate risk with a swap that requires Second National to

Accepted Answer

A) pay fixed rate while receiving floating rate. 
B) receive fixed rate while paying floating rate. 
C) both receive and pay fixed rate. 
D) both receive and pay floating rate. 
A) pay fixed rate while receiving floating rate. 
B) receive fixed rate while paying floating rate. 
C) both receive and pay fixed rate. 
D) both receive and pay floating rate.

Question 18

Futures differ from forwards because they are

Accepted Answer

A) used to hedge portfolios. 
B) used to hedge individual securities. 
C) used in both financial and foreign exchange markets. 
D) a standardized contract. 
A) used to hedge portfolios. 
B) used to hedge individual securities. 
C) used in both financial and foreign exchange markets. 
D) a standardized contract.

Question 19

Show graphically and explain the profits and losses of buying futures relative to buying call options.

Accepted Answer

See figure below.
 @#IMG-DLM& As shown in the grap

Question 20

A put option gives the seller the

Accepted Answer

A) right to sell the underlying security. 
B) obligation to sell the underlying security. 
C) right to buy the underlying security. 
D) obligation to buy the underlying security. 
A) right to sell the underlying security. 
B) obligation to sell the underlying security. 
C) right to buy the underlying security. 
D) obligation to buy the underlying security.

Exam 29: Web 4:financial Derivatives

A contract that requires the investor to sell securities on a future date is called a

Assume you are holding Treasury securities and have sold futures to hedge against interest-rate risk.If interest rates fall

By taking the short position on a futures contract of $100,000 at a price of 115 you are agreeing to ________ a ________ face value security for ________.

Options on futures contracts are referred to as

Suppose that Wells Fargo Home Mortgage sells $10 million worth of mortgage payments to GMAC in exchange for $10 million in auto loan payments.This type of transaction is called a

To say that the forward market lacks liquidity means that

The credit derivative that,for a fee,gives the purchaser the right to receive profits that are tied either to the price of an underlying security or to an interest rate is called a

A call option gives the owner the

What is arbitrage? Explain why arbitrage drives the contract price of futures to the price of the underlying asset on the expiration date,for prices above and below the asset price.

All other things held constant,premiums on call options will increase when the

A person who agrees to buy an asset at a future date is going

To hedge the interest rate risk on $4 million of Treasury bonds with $100,000 futures contracts,you would need to purchase

When the financial institution is hedging interest-rate risk on its overall portfolio,then the hedge is a

A put option gives the owner the

If,for a $1000 premium,you buy a $100,000 call option on bond futures with a strike price of 114,and at the expiration date the price is 110,your ________ is ________.

If you sold a short contract on financial futures you hope interest rates

If Second National Bank has more rate-sensitive assets than rate-sensitive liabilities,it can reduce interest-rate risk with a swap that requires Second National to

Futures differ from forwards because they are

Show graphically and explain the profits and losses of buying futures relative to buying call options.

A put option gives the seller the

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Web 1:financial Crises in Emerging Market Economies

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Web 3:nonbank Finance

Web 5:conflicts of Interest in the Financial Services Industry

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By taking the short position on a futures contract of $100,000 at a price of 115 you are agreeing to a face value security for .

If,for a $1000 premium,you buy a $100,000 call option on bond futures with a strike price of 114,and at the expiration date the price is 110,your is .