Question 1

if you buy an option to buy Canada futures at 110,and at expiration the market price is 115,________.

Accepted Answer

A)  the call will be exercised 
B)  the put will be exercised 
C)  the call will not be exercised 
D)  the put will not be exercised 
A)  the call will be exercised 
B)  the put will be exercised 
C)  the call will not be exercised 
D)  the put will not be exercised A

Question 2

If a firm must pay for goods it has ordered with foreign currency,it can hedge its foreign exchange rate risk by ________.

Accepted Answer

A)  selling foreign exchange futures short 
B)  buying foreign exchange futures long 
C)  staying out of the exchange futures market 
D)  selling foreign exchange forward contracts short 
A)  selling foreign exchange futures short 
B)  buying foreign exchange futures long 
C)  staying out of the exchange futures market 
D)  selling foreign exchange forward contracts short B

Question 3

If you buy in April a stock index future contract on the S&P 500 index at the price of 1050 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 1047,you have a ________ of $________.

Accepted Answer

A)  loss; 750 
B)  loss; 3 
C)  profit; 750 
D)  profit; 3 
A)  loss; 750 
B)  loss; 3 
C)  profit; 750 
D)  profit; 3 A

Question 4

If Second Bank has more rate-sensitive liabilities then rate-sensitive assets,it can reduce interest rate risk with a swap which requires Second Bank to ________.

Accepted Answer

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

Question 5

The main disadvantage of futures contracts as compared to options on futures contracts is that futures ________.

Accepted Answer

A)  remove the possibility of gains 
B)  increase the transactions cost 
C)  are not as effective a hedge 
D)  do not remove the possibility of losses 
A)  remove the possibility of gains 
B)  increase the transactions cost 
C)  are not as effective a hedge 
D)  do not remove the possibility of losses

Question 6

An option that gives the owner the right to buy a financial instrument at the exercise price within a specified period of time is a(n)________.

Accepted Answer

A)  call option 
B)  put option 
C)  American option 
D)  European option 
A)  call option 
B)  put option 
C)  American option 
D)  European option

Question 7

Futures contracts are regularly traded on the ________.

Accepted Answer

A)  Montreal Exchange 
B)  Toronto Stock Exchange 
C)  American Stock Exchange 
D)  Chicago Board of Options Exchange 
A)  Montreal Exchange 
B)  Toronto Stock Exchange 
C)  American Stock Exchange 
D)  Chicago Board of Options Exchange

Question 8

A swap that involves the exchange of one set of interest payments for another set of interest payments is called a(n)________.

Accepted Answer

A)  interest rate swap 
B)  currency swap 
C)  swaption 
D)  national swap 
A)  interest rate swap 
B)  currency swap 
C)  swaption 
D)  national swap

Question 9

If you sell in April a stock index future contract on the S&P 500 index at the price of 800 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 795,you have a ________ of $________.

Accepted Answer

A)  loss; 1250 
B)  loss; 5 
C)  profit; 1250 
D)  profit; 5 
A)  loss; 1250 
B)  loss; 5 
C)  profit; 1250 
D)  profit; 5

Question 10

What is the value of a put option at expiration? use an appropriate graph to show the profit and loses of the buyer and seller of a put option.

Accepted Answer

The value of a put option at expiration,

Question 11

What are the pros and cons of forward contracts?

Accepted Answer

The advantage of forward contracts is th

Question 12

If you sell in March a bond future contract for 150 that matures on June 30 of the same year,and on the maturity date the same future sells for 170,you have a ________ of $________.

Accepted Answer

A)  loss; 20000 
B)  loss; 20 
C)  profit; 20000 
D)  profit; 20 
A)  loss; 20000 
B)  loss; 20 
C)  profit; 20000 
D)  profit; 20

Question 13

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 14

If you sell in March a bond future contract for 125 that matures on June 30 of the same year,and at the maturity date the same future sells for 135,you have a ________ of $________.

Accepted Answer

A)  loss; 10000 
B)  loss; 10 
C)  profit; 10000 
D)  profit; 10 
A)  loss; 10000 
B)  loss; 10 
C)  profit; 10000 
D)  profit; 10

Question 15

What are options? What are their differences from futures contracts?

Accepted Answer

Options are contracts that give the purc

Question 16

An option that can be exercised only at maturity is called a(n)________.

Accepted Answer

A)  swap 
B)  stock option 
C)  European option 
D)  American option 
A)  swap 
B)  stock option 
C)  European option 
D)  American option

Question 17

Who would be most likely to buy a long stock index future?

Accepted Answer

A)  A mutual fund manager who believes the market will rise 
B)  A mutual fund manager who believes the market will fall 
C)  A mutual fund manager who believes the market will be stable 
D)  A mutual fund manager who does not believe in hedging 
A)  A mutual fund manager who believes the market will rise 
B)  A mutual fund manager who believes the market will fall 
C)  A mutual fund manager who believes the market will be stable 
D)  A mutual fund manager who does not believe in hedging

Question 18

The risk that occurs because stock prices fluctuate is called ________.

Accepted Answer

A)  stock market risk 
B)  reinvestment risk 
C)  interest rate risk 
D)  default risk 
A)  stock market risk 
B)  reinvestment risk 
C)  interest rate risk 
D)  default risk

Question 19

A put option gives the seller ________.

Accepted Answer

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

Question 20

What is the value of a call option at expiration? use an appropriate graph to show the profit and loses of the buyer and seller of a call option.

Accepted Answer

The value of a call option at expiration

Exam 14: Risk Management With Financial Derivatives

if you buy an option to buy Canada futures at 110,and at expiration the market price is 115,________.

If a firm must pay for goods it has ordered with foreign currency,it can hedge its foreign exchange rate risk by ________.

If you buy in April a stock index future contract on the S&P 500 index at the price of 1050 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 1047,you have a ________ of $________.

If Second Bank has more rate-sensitive liabilities then rate-sensitive assets,it can reduce interest rate risk with a swap which requires Second Bank to ________.

The main disadvantage of futures contracts as compared to options on futures contracts is that futures ________.

An option that gives the owner the right to buy a financial instrument at the exercise price within a specified period of time is a(n)________.

Futures contracts are regularly traded on the ________.

A swap that involves the exchange of one set of interest payments for another set of interest payments is called a(n)________.

If you sell in April a stock index future contract on the S&P 500 index at the price of 800 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 795,you have a ________ of $________.

What is the value of a put option at expiration? use an appropriate graph to show the profit and loses of the buyer and seller of a put option.

What are the pros and cons of forward contracts?

If you sell in March a bond future contract for 150 that matures on June 30 of the same year,and on the maturity date the same future sells for 170,you have a ________ of $________.

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

If you sell in March a bond future contract for 125 that matures on June 30 of the same year,and at the maturity date the same future sells for 135,you have a ________ of $________.

What are options? What are their differences from futures contracts?

An option that can be exercised only at maturity is called a(n)________.

Who would be most likely to buy a long stock index future?

The risk that occurs because stock prices fluctuate is called ________.

A put option gives the seller ________.

What is the value of a call option at expiration? use an appropriate graph to show the profit and loses of the buyer and seller of a call option.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour 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

Financial Crises

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Banking and the Management of Financial Institutions

Central Banks and the Bank of Canada

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

The ISLM Model

Filters

If you buy in April a stock index future contract on the S&P 500 index at the price of 1050 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 1047,you have a of $.

If you sell in April a stock index future contract on the S&P 500 index at the price of 800 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 795,you have a of $.

If you sell in March a bond future contract for 150 that matures on June 30 of the same year,and on the maturity date the same future sells for 170,you have a of $.

If you sell in March a bond future contract for 125 that matures on June 30 of the same year,and at the maturity date the same future sells for 135,you have a of $.