Question 1

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

Question 2

The disadvantage of swaps is that ________.

Accepted Answer

A) they lack liquidity 
B) it is easy to arrange for a counterparty 
C) they do not have default risk 
D) they are costly 
A) they lack liquidity 
B) it is easy to arrange for a counterparty 
C) they do not have default risk 
D) they are costly

Question 3

An option that gives the owner the tight to sell 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 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

If you buy a European call option on Canada bonds with a strike price of 120 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 123, you will ________ the option in order to make a profit of $________.

Accepted Answer

A) not exercise; 3000 
B) not exercise; 3 
C) exercise; 3000 
D) exercise; 3 
A) not exercise; 3000 
B) not exercise; 3 
C) exercise; 3000 
D) exercise; 3

Question 6

If you buy 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 7

If you buy in April a stock index future contract on the S&P 500 index at the price of 1000 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 900, you have a ________ of $________.

Accepted Answer

A) loss; 25000 
B) loss; 100 
C) profit; 25000 
D) profit; 100 
A) loss; 25000 
B) loss; 100 
C) profit; 25000 
D) profit; 100

Question 8

If you sell in April a stock index future contract on the S&P 500 index at the price of 1000 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 900, you have a ________ of $________.

Accepted Answer

A) loss; 25000 
B) loss; 100 
C) profit; 25000 
D) profit; 100 
A) loss; 25000 
B) loss; 100 
C) profit; 25000 
D) profit; 100

Question 9

What is an interest-rate futures contract? How does it differ from an interest-rate forward contract?

Accepted Answer

An interest-rate futures contract is sim

Question 10

When a financial institution hedges the interest-rate risk for a specific asset, the hedge is called 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 11

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 12

If you sell 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

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

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 15

Intermediaries are active in the swap markets because ________.

Accepted Answer

A) they increase liquidity 
B) they increase default risk 
C) they increase search cost 
D) they do not need counterparties 
A) they increase liquidity 
B) they increase default risk 
C) they increase search cost 
D) they do not need counterparties

Question 16

If you buy a European call option on Canada bonds with a strike price of 110 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 103, you will ________ the option and potentially make a profit of $________.

Accepted Answer

A) not exercise; 7000 
B) not exercise; 7 
C) exercise; 7000 
D) exercise; 7 
A) not exercise; 7000 
B) not exercise; 7 
C) exercise; 7000 
D) exercise; 7

Question 17

The price specified in an option contract at which the holder can buy or sell the underlying asset is called the ________.

Accepted Answer

A) premium 
B) interest rate 
C) exercise price 
D) call 
A) premium 
B) interest rate 
C) exercise price 
D) call

Question 18

By buying a long $100,000 futures contract for 115, you agree to pay ________.

Accepted Answer

A) $100,000 for $115,000 face value bonds 
B) $115,000 for $100,000 face value bonds 
C) $86956 for $100,000 face value bonds 
D) $86956 for $115,000 face value bonds 
A) $100,000 for $115,000 face value bonds 
B) $115,000 for $100,000 face value bonds 
C) $86956 for $100,000 face value bonds 
D) $86956 for $115,000 face value bonds

Question 19

If you sell 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 $________.

Accepted Answer

A) loss; 15000 
B) loss; 15 
C) profit; 15000 
D) profit; 15 
A) loss; 15000 
B) loss; 15 
C) profit; 15000 
D) profit; 15

Question 20

If you sell in February 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 105, 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

Exam 13: Risk Management With Financial Derivatives

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.

The disadvantage of swaps is that ________.

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

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 ________.

If you buy a European call option on Canada bonds with a strike price of 120 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 123, you will ________ the option in order to make a profit of $________.

If you buy 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 buy in April a stock index future contract on the S&P 500 index at the price of 1000 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 900, you have a ________ of $________.

If you sell in April a stock index future contract on the S&P 500 index at the price of 1000 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 900, you have a ________ of $________.

What is an interest-rate futures contract? How does it differ from an interest-rate forward contract?

When a financial institution hedges the interest-rate risk for a specific asset, the hedge is called a ________.

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

If you sell 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 $________.

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

A put option gives the seller ________.

Intermediaries are active in the swap markets because ________.

If you buy a European call option on Canada bonds with a strike price of 110 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 103, you will ________ the option and potentially make a profit of $________.

The price specified in an option contract at which the holder can buy or sell the underlying asset is called the ________.

By buying a long $100,000 futures contract for 115, you agree to pay ________.

If you sell 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 $________.

If you sell in February 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 105, 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 a European call option on Canada bonds with a strike price of 120 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 123, you will the option in order to make a profit of $.

If you buy 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 buy in April a stock index future contract on the S&P 500 index at the price of 1000 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 900, you have a of $.

If you sell in April a stock index future contract on the S&P 500 index at the price of 1000 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 900, you have a of $.

If you sell 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 $.

If you buy a European call option on Canada bonds with a strike price of 110 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 103, you will the option and potentially make a profit of $.

If you sell 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 $.

If you sell in February 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 105, you have a of $.