Exam 13: Risk Management With Financial Derivatives

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 $________.

An increase in the volatility of the underlying asset, all other things held constant, will ________ the option premium.

All other things held constant, premiums on put options will increase when the ________.

Futures differ from forwards because they are ________.

If you buy in March a bond future contract for 110 that matures on June 30 of the same year, and at the maturity date the same future sells for 125, you have a ________ of $________.

An option that can be exercised at any time up to maturity is called a(n)________.

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

Financial derivatives include ________.

The main reason to buy an option on a futures contract rather than buying the futures contract is ________.

The number of contracts outstanding in a particular financial future is the ________.

A long position requires that the investor ________.

What are the pros and cons of forward contracts?

A call option gives the owner ________.

If you buy in April a stock index future contract on the S&P 500 index at the price of 1200 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 1000, you have a ________ of $________.

The seller of an option has the ________ to buy or sell the underlying asset, while the purchaser of an option has the ________ to buy or sell the asset.

________ derivatives offer payoffs on previously issued securities, but ones that bear credit risk.

A put option gives the owner ________.

A contract that requires the investor to buy securities on a future date is called a ________.

Options are contracts that give the purchasers the ________.

Why have options on financial futures become the most widely traded option contracts?