Question 1

A ____ requires a premium above and beyond the price to be paid for the financial instrument.

Accepted Answer

A)  futures contract 
B)  call option 
C)  put option 
D)  B and C 
A)  futures contract 
B)  call option 
C)  put option 
D)  B and C

Question 2

If a corporation hedges payables with currency call options, it will ____ if the value of the foreign currency is ____ than the exercise price when the payables are due.

Accepted Answer

A)  exercise the option; greater 
B)  exercise the option; less 
C)  let the option expire; greater 
D)  let the option expire; less 
E)  A and D 
A)  exercise the option; greater 
B)  exercise the option; less 
C)  let the option expire; greater 
D)  let the option expire; less 
E)  A and D

Question 3

Covered call writing ____ the upside potential return and ____ the risk of an investment in stock.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  limits; increases 
D)  limits; decreases 
A)  increases; increases 
B)  increases; decreases 
C)  limits; increases 
D)  limits; decreases

Question 4

American-style stock options can be exercised only just before expiration.

Accepted Answer

A) True 
 B)False

Question 5

Put options are typically used to hedge when portfolio managers are mainly concerned about

Accepted Answer

A)  a permanent decline in a stock's value. 
B)  a permanent increase in a stock's value. 
C)  a temporary decline in a stock's value. 
D)  a temporary increase in a stock's value. 
A)  a permanent decline in a stock's value. 
B)  a permanent increase in a stock's value. 
C)  a temporary decline in a stock's value. 
D)  a temporary increase in a stock's value.

Question 6

The purchaser of an American-style put option is always better off exercising the option at the expiration date than before that date.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following does not directly affect a call option premium?

Accepted Answer

A)  volatility of the underlying instrument 
B)  market price of the underlying instrument 
C)  analyst rating of the underlying instrument 
D)  time to maturity of the option 
A)  volatility of the underlying instrument 
B)  market price of the underlying instrument 
C)  analyst rating of the underlying instrument 
D)  time to maturity of the option

Question 8

The Options Clearing Corporation (OCC) serves as a guarantor on option contracts traded in the United States.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following can normally be found in quotations for stock options provided by the financial media?

Accepted Answer

A)  exercise price, expiration date, and implied volatility 
B)  exercise price, expiration date, and most recently quoted premium 
C)  expiration date, implied volatility, and trading volume 
D)  expiration date, most recently quoted premium, and implied volatility 
A)  exercise price, expiration date, and implied volatility 
B)  exercise price, expiration date, and most recently quoted premium 
C)  expiration date, implied volatility, and trading volume 
D)  expiration date, most recently quoted premium, and implied volatility

Question 10

The ____ is not a factor affecting the call option premium.

Accepted Answer

A)  market price of the underlying instrument (relative to the option's exercise price) 
B)  volatility of the underlying instrument 
C)  current price of futures contracts on the underlying instrument 
D)  time to maturity of the call option 
A)  market price of the underlying instrument (relative to the option's exercise price) 
B)  volatility of the underlying instrument 
C)  current price of futures contracts on the underlying instrument 
D)  time to maturity of the call option

Question 11

Assuming the same expiration date, an option with a ____ exercise price has a ____ call option premium and a ____ put option premium.

Accepted Answer

A)  higher; higher; higher 
B)  higher; higher; lower 
C)  higher; lower; higher 
D)  lower; lower; higher 
E)  none of the above 
A)  higher; higher; higher 
B)  higher; higher; lower 
C)  higher; lower; higher 
D)  lower; lower; higher 
E)  none of the above

Question 12

The premium on an existing call option should ____ when there is a reduction in the expected short-term volatility of the stock price.

Accepted Answer

A)  be negative 
B)  decline 
C)  increase 
D)  be unaffected 
E)  A and B 
A)  be negative 
B)  decline 
C)  increase 
D)  be unaffected 
E)  A and B

A ____ requires a premium above and beyond the price to be paid for the financial instrument.

If a corporation hedges payables with currency call options, it will if the value of the foreign currency is than the exercise price when the payables are due.

Covered call writing the upside potential return and the risk of an investment in stock.

American-style stock options can be exercised only just before expiration.

Put options are typically used to hedge when portfolio managers are mainly concerned about

The purchaser of an American-style put option is always better off exercising the option at the expiration date than before that date.

Which of the following does not directly affect a call option premium?

The Options Clearing Corporation (OCC) serves as a guarantor on option contracts traded in the United States.

Which of the following can normally be found in quotations for stock options provided by the financial media?

The ____ is not a factor affecting the call option premium.

Assuming the same expiration date, an option with a exercise price has a call option premium and a put option premium.

The premium on an existing call option should ____ when there is a reduction in the expected short-term volatility of the stock price.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance Operations

Pension Fund Operations

Filters

Exam 14: Options Markets

A ____ requires a premium above and beyond the price to be paid for the financial instrument.

If a corporation hedges payables with currency call options, it will ____ if the value of the foreign currency is ____ than the exercise price when the payables are due.

Covered call writing ____ the upside potential return and ____ the risk of an investment in stock.

American-style stock options can be exercised only just before expiration.

Put options are typically used to hedge when portfolio managers are mainly concerned about

The purchaser of an American-style put option is always better off exercising the option at the expiration date than before that date.

Which of the following does not directly affect a call option premium?

The Options Clearing Corporation (OCC) serves as a guarantor on option contracts traded in the United States.

Which of the following can normally be found in quotations for stock options provided by the financial media?

The ____ is not a factor affecting the call option premium.

Assuming the same expiration date, an option with a ____ exercise price has a ____ call option premium and a ____ put option premium.

The premium on an existing call option should ____ when there is a reduction in the expected short-term volatility of the stock price.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance Operations

Pension Fund Operations

Filters

If a corporation hedges payables with currency call options, it will if the value of the foreign currency is than the exercise price when the payables are due.

Covered call writing the upside potential return and the risk of an investment in stock.

Assuming the same expiration date, an option with a exercise price has a call option premium and a put option premium.