Question 1

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 2

As compared to a default on the notional principle, a default on a swap ________.

Accepted Answer

A) is more costly 
B) is about as costly 
C) is less costly 
D) may cost more or less than default on the notional principle 
A) is more costly 
B) is about as costly 
C) is less costly 
D) may cost more or less than default on the notional principle

Question 3

Credit options are contracts where the purchaser gains the right to receive profits that are tied to ________.

Accepted Answer

A) the obligation to buy or sell an underlying asset 
B) the price of an underlying security or to an interest rate 
C) the right to hold an underlying asset 
D) the right to switch payment streams 
A) the obligation to buy or sell an underlying asset 
B) the price of an underlying security or to an interest rate 
C) the right to hold an underlying asset 
D) the right to switch payment streams

Question 4

The main advantage of using options on futures contracts rather than the futures contracts themselves is that ________.

Accepted Answer

A) interest rate risk is controlled while preserving the possibility of gains 
B) interest rate risk is controlled, while removing the possibility of losses 
C) interest rate risk is not controlled, but the possibility of gains is preserved 
D) interest rate risk is not controlled, but the possibility of gains is lost 
A) interest rate risk is controlled while preserving the possibility of gains 
B) interest rate risk is controlled, while removing the possibility of losses 
C) interest rate risk is not controlled, but the possibility of gains is preserved 
D) interest rate risk is not controlled, but the possibility of gains is lost

Question 5

One advantage of using swaps to eliminate interest-rate risk is that swaps ________.

Accepted Answer

A) are less costly than futures 
B) are less costly than rearranging balance sheets 
C) are more liquid than futures 
D) have better accounting treatment than options 
A) are less costly than futures 
B) are less costly than rearranging balance sheets 
C) are more liquid than futures 
D) have better accounting treatment than options

Question 6

Use an appropriate graph to show the profits and losses for the buyer of a call option and the buyer of a futures contract, when the price of the future and the exercise price of the option is 115 and the premium is equal to $2000.

Accepted Answer

The answer of Use an appropriate graph to show the...

Question 7

A financial contract that obligates one party to exchange a set of payments it owns for another set of payments owned by another party is called a ________.

Accepted Answer

A) cross hedge 
B) cross call option 
C) cross put option 
D) swap 
A) cross hedge 
B) cross call option 
C) cross put option 
D) swap

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

Which of the following is a likely reason for a money market fund manager to sell a stock index future short?

Accepted Answer

A) He believes the market will rise. 
B) He wants to lock in current prices. 
C) He wants to increase stock market risk. 
D) He believes the market will be unchanged. 
A) He believes the market will rise. 
B) He wants to lock in current prices. 
C) He wants to increase stock market risk. 
D) He believes the market will be unchanged.

Question 10

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

Question 11

If you buy 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 12

An increase in the exercise price, all other things held constant, will ________ the premium on call options.

Accepted Answer

A) increase 
B) decrease 
C) increase or decrease 
D) Not enough information is given. 
A) increase 
B) decrease 
C) increase or decrease 
D) Not enough information is given.

Question 13

If you buy an option to sell 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

Question 14

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 15

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 16

A swap that involves the exchange of a set of payments in one currency for a set of payments in another currency is 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 17

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 18

If you buy a futures contract on the S&P 500 Index at a price of 450 and the index rises to 500, you will ________.

Accepted Answer

A) lose $12500 
B) gain $12500 
C) lose $50 
D) gain $50 
A) lose $12500 
B) gain $12500 
C) lose $50 
D) gain $50

Question 19

Where are financial futures traded? Describe that market.

Accepted Answer

Financial futures contracts are traded o

Question 20

If you buy in February a bond future contract for 120 that matures on June 30 of the same year, and at the maturity date the same future sells for 110, 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

Exam 13: Risk Management With Financial Derivatives

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

As compared to a default on the notional principle, a default on a swap ________.

Credit options are contracts where the purchaser gains the right to receive profits that are tied to ________.

The main advantage of using options on futures contracts rather than the futures contracts themselves is that ________.

One advantage of using swaps to eliminate interest-rate risk is that swaps ________.

Use an appropriate graph to show the profits and losses for the buyer of a call option and the buyer of a futures contract, when the price of the future and the exercise price of the option is 115 and the premium is equal to $2000.

A financial contract that obligates one party to exchange a set of payments it owns for another set of payments owned by another party is called a ________.

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

Which of the following is a likely reason for a money market fund manager to sell a stock index future short?

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 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 $________.

An increase in the exercise price, all other things held constant, will ________ the premium on call options.

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

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)________.

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

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

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.

If you buy a futures contract on the S&P 500 Index at a price of 450 and the index rises to 500, you will ________.

Where are financial futures traded? Describe that market.

If you buy in February a bond future contract for 120 that matures on June 30 of the same year, and at the maturity date the same future sells for 110, you have a ________ of $________.

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

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

Financial Crises in Emerging Markets

The ISLM Model

Non-Bank Finance

Filters

If you buy 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 $.

If you buy in February a bond future contract for 120 that matures on June 30 of the same year, and at the maturity date the same future sells for 110, you have a of $.