Question 1

Counterparties to an interest rate swap exchange both interest payments and principal amounts.

Accepted Answer

A) True 
 B)False

Question 2

The typical sequence of cash flows in a futures contract is:

Accepted Answer

A) Purchase price plus a margin account up front, differences are settled at expiration 
B) Margin account up front, differences are posted daily and settled in cash if margin drops too low 
C) Margin account up front, all differences settled at expiration 
D) All funds are paid at expiration of the contract 
A) Purchase price plus a margin account up front, differences are settled at expiration 
B) Margin account up front, differences are posted daily and settled in cash if margin drops too low 
C) Margin account up front, all differences settled at expiration 
D) All funds are paid at expiration of the contract

Question 3

Which of the following is not generally considered a benefit of hedging?

Accepted Answer

A) It reduces one or more aspects of business risk 
B) It allows prices to be locked in advance 
C) The costs of hedging are paid by the speculators 
D) It can stabilize profits 
A) It reduces one or more aspects of business risk 
B) It allows prices to be locked in advance 
C) The costs of hedging are paid by the speculators 
D) It can stabilize profits

Question 4

Financial futures contracts are available only through the Chicago Board of Trade.

Accepted Answer

A) True 
 B)False

Question 5

The profit from a futures contract is the difference between the initial futures price and the spot price at expiration.

Accepted Answer

A) True 
 B)False

Question 6

The swap is the arrangement by two counterparties to exchange one stream of cash flow for another.

Accepted Answer

A) True 
 B)False

Question 7

What do you think are the advantages of holding futures rather than the underlying commodity? What do you think are the disadvantages?

Accepted Answer

One advantage of holding futures is the

Question 8

In an interest rate swap, borrowers typically exchange fixed-rate payments in one currency for:

Accepted Answer

A) Fixed-rate payments in another currency 
B) Variable-rate payments in another currency 
C) Fixed-rate payments in the same currency 
D) Variable-rate payments in the same currency 
A) Fixed-rate payments in another currency 
B) Variable-rate payments in another currency 
C) Fixed-rate payments in the same currency 
D) Variable-rate payments in the same currency

Question 9

PAWS Inc.has structured a currency swap through its bank.PAWS intends to use the funds to finance an expansion in its Irish operations.The terms are that PAWS will borrow $2 million at a 9 percent rate, with interest-only paid in the first two years and all principal repaid after three years.The bank will provide punts (Irish currency) at an exchange rate of Ir$\le$0.65/$and an interest rate of 12 percent.Illustrate the flows between PAWS and the bank during the three-year loan.

Accepted Answer

@#IMG-DLM& (flows in

Question 10

A miller can hedge the price risk on wheat by taking one of the following positions.

Accepted Answer

A) Buying put options on wheat 
B) Selling call options on wheat 
C) Buying wheat futures 
D) Selling wheat futures 
A) Buying put options on wheat 
B) Selling call options on wheat 
C) Buying wheat futures 
D) Selling wheat futures

Question 11

A hedger who buys a futures contract is betting that prices will _____ at the expiration of the contract.

Accepted Answer

A) Decrease 
B) Increase 
C) Remain constant 
D) Guarantee high profits 
A) Decrease 
B) Increase 
C) Remain constant 
D) Guarantee high profits

Question 12

120.Provide a brief explanation of a currency and interest rate swap.

Accepted Answer

A currency swap is an agreement to excha

Question 13

An oil producer would sell, rather than buy, crude oil futures for protection from falling prices.

Accepted Answer

A) True 
 B)False

Question 14

The seller of a copper futures contract noticed that her account was marked with a $500 gain yesterday.If the standardized contract requires delivery of 25,000 pounds of copper, what happened that day to the price of copper?

Accepted Answer

A) The price closed down $0.02 per pound 
B) The price closed up $0.02 per pound 
C) The price closed down $0.20 per pound 
D) The price closed up $0.20 per pound 
A) The price closed down $0.02 per pound 
B) The price closed up $0.02 per pound 
C) The price closed down $0.20 per pound 
D) The price closed up $0.20 per pound

Question 15

When two borrowers engage in a currency swap, they agree to:

Accepted Answer

A) Trade one currency for another, thus avoiding the foreign exchange market 
B) Make payments on each other's borrowings in a different currency 
C) Pay to each other any depreciation or appreciation of the currency 
D) Exchange fixed-rate interest payments for variable-rate interest payments 
A) Trade one currency for another, thus avoiding the foreign exchange market 
B) Make payments on each other's borrowings in a different currency 
C) Pay to each other any depreciation or appreciation of the currency 
D) Exchange fixed-rate interest payments for variable-rate interest payments

Question 16

A farmer hedged his risk by buying put options on wheat with an exercise price of $2.70 at a price of $0.14 per bushel.If the price of wheat at the expiration of the contract is $2.70, what is the net revenue from each bushel of wheat?

Accepted Answer

A) $2.56 
B) $2.63 
C) $2.70 
D) $2.84 Revenue from one bushel of wheat = $2.70 
A) $2.56 
B) $2.63 
C) $2.70 
D) $2.84 Revenue from one bushel of wheat = $2.70

Question 17

You enter into a forward contract to take delivery of one million Deutsche marks three months from now.What happens to the price you will pay at expiration if marks depreciate during the contract?

Accepted Answer

A) Your price will increase 
B) Your price will decrease 
C) Your price was fixed at the onset of the contract 
D) Your price was fixed, and you will receive correspondingly more marks due to the depreciation 
A) Your price will increase 
B) Your price will decrease 
C) Your price was fixed at the onset of the contract 
D) Your price was fixed, and you will receive correspondingly more marks due to the depreciation

Question 18

The activities of speculators are necessary in the futures markets in order to:

Accepted Answer

A) Prevent hedgers from trading options 
B) Provide a continual stream of profit to hedgers 
C) Maintain futures prices at appropriate levels 
D) Understand the direction of future price changes 
A) Prevent hedgers from trading options 
B) Provide a continual stream of profit to hedgers 
C) Maintain futures prices at appropriate levels 
D) Understand the direction of future price changes

Question 19

Currency swaps are used to:

Accepted Answer

A) Lock in an exchange rate for future delivery of a foreign currency 
B) Effectively transform loans originated in one currency to a different currency 
C) Transform fixed-rate loans into variable-rate loans 
D) Exchange foreign currencies in amounts not possible in the foreign exchange market 
A) Lock in an exchange rate for future delivery of a foreign currency 
B) Effectively transform loans originated in one currency to a different currency 
C) Transform fixed-rate loans into variable-rate loans 
D) Exchange foreign currencies in amounts not possible in the foreign exchange market

Question 20

Most actively traded forward contracts are written on:

Accepted Answer

A) U.S.Treasury bills 
B) Standard & Poor's index 
C) Wheat contracts 
D) Foreign currencies 
A) U.S.Treasury bills 
B) Standard & Poor's index 
C) Wheat contracts 
D) Foreign currencies

Exam 26: What We Do and Do Not Know About Finance

Counterparties to an interest rate swap exchange both interest payments and principal amounts.

The typical sequence of cash flows in a futures contract is:

Which of the following is not generally considered a benefit of hedging?

Financial futures contracts are available only through the Chicago Board of Trade.

The profit from a futures contract is the difference between the initial futures price and the spot price at expiration.

The swap is the arrangement by two counterparties to exchange one stream of cash flow for another.

What do you think are the advantages of holding futures rather than the underlying commodity? What do you think are the disadvantages?

In an interest rate swap, borrowers typically exchange fixed-rate payments in one currency for:

A miller can hedge the price risk on wheat by taking one of the following positions.

A hedger who buys a futures contract is betting that prices will _____ at the expiration of the contract.

120.Provide a brief explanation of a currency and interest rate swap.

An oil producer would sell, rather than buy, crude oil futures for protection from falling prices.

The seller of a copper futures contract noticed that her account was marked with a $500 gain yesterday.If the standardized contract requires delivery of 25,000 pounds of copper, what happened that day to the price of copper?

When two borrowers engage in a currency swap, they agree to:

A farmer hedged his risk by buying put options on wheat with an exercise price of $2.70 at a price of $0.14 per bushel.If the price of wheat at the expiration of the contract is $2.70, what is the net revenue from each bushel of wheat?

You enter into a forward contract to take delivery of one million Deutsche marks three months from now.What happens to the price you will pay at expiration if marks depreciate during the contract?

The activities of speculators are necessary in the futures markets in order to:

Currency swaps are used to:

Most actively traded forward contracts are written on:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

Filters