Question 1

Swaps differ from futures and options in all of the following ways EXCEPT:

Accepted Answer

A) intended to reduce the risk faced by participants. 
B) more flexibility. 
C) more privacy. 
D) less regulation. 
A) intended to reduce the risk faced by participants. 
B) more flexibility. 
C) more privacy. 
D) less regulation.

Question 2

The seller of a futures contract

Accepted Answer

A) assumes the short position. 
B) assumes the long position. 
C) has the obligation to receive the underlying financial instrument at the specified future date. 
D) is expecting the price of the underlying financial instrument to rise. 
A) assumes the short position. 
B) assumes the long position. 
C) has the obligation to receive the underlying financial instrument at the specified future date. 
D) is expecting the price of the underlying financial instrument to rise.

Question 3

Speculators are primarily interested in

Accepted Answer

A) betting on anticipated changes in prices. 
B) reducing their exposure to the risk of price fluctuations. 
C) increasing market liquidity. 
D) reducing the spread between bid and ask prices on bonds. 
A) betting on anticipated changes in prices. 
B) reducing their exposure to the risk of price fluctuations. 
C) increasing market liquidity. 
D) reducing the spread between bid and ask prices on bonds.

Question 4

Which of the following statements about the presence of speculators in futures markets is correct?

Accepted Answer

A) Their main objective is to reduce their exposure to risk. 
B) They aid hedgers by increasing the liquidity in futures markets. 
C) They make it difficult for hedgers to find someone to take the opposite side of their positions. 
D) Once a futures market participant is known to be a speculator he or she is no longer allowed to participate in the market. 
A) Their main objective is to reduce their exposure to risk. 
B) They aid hedgers by increasing the liquidity in futures markets. 
C) They make it difficult for hedgers to find someone to take the opposite side of their positions. 
D) Once a futures market participant is known to be a speculator he or she is no longer allowed to participate in the market.

Question 5

An option buyer

Accepted Answer

A) has a greater insurance benefit than the purchaser of a futures contract. 
B) bears the risk of unfavorable price movements. 
C) is purchasing a naked option if he or she does not also own the underlying asset. 
D) generally will incur a lower cost than will the purchaser of a futures contract. 
A) has a greater insurance benefit than the purchaser of a futures contract. 
B) bears the risk of unfavorable price movements. 
C) is purchasing a naked option if he or she does not also own the underlying asset. 
D) generally will incur a lower cost than will the purchaser of a futures contract.

Question 6

Compare the rights and obligations of buyers and sellers of futures contracts with the rights of buyers and sellers of options contracts.

Accepted Answer

Buyers and sellers of futures contracts

Question 7

Which of the following statements is NOT true of the VIX?

Accepted Answer

A) It is calculated based on prices of call and put options of the S&P 500. 
B) Investors who want to hedge against stock market volatility can sell VIX options. 
C) A VIX of 10 indicates investors expect the S&P 500 to fluctuate by 10% at an annual rate over the next 30 days. 
D) The VIX is a measure of fear in the stock market. 
A) It is calculated based on prices of call and put options of the S&P 500. 
B) Investors who want to hedge against stock market volatility can sell VIX options. 
C) A VIX of 10 indicates investors expect the S&P 500 to fluctuate by 10% at an annual rate over the next 30 days. 
D) The VIX is a measure of fear in the stock market.

Question 8

Futures trading has traditionally been dominated by

Accepted Answer

A) the New York Stock Exchange. 
B) the Chicago Board of Trade and the New York Mercantile Exchange. 
C) the London Stock Exchange. 
D) the Omaha Grain Exchange. 
A) the New York Stock Exchange. 
B) the Chicago Board of Trade and the New York Mercantile Exchange. 
C) the London Stock Exchange. 
D) the Omaha Grain Exchange.

Question 9

When talking about forward contracts, the date on which the contracted delivery must take place is called:

Accepted Answer

A) the settlement date 
B) the counterparty date 
C) forward date 
D) spot date 
A) the settlement date 
B) the counterparty date 
C) forward date 
D) spot date

Question 10

The futures price

Accepted Answer

A) reflects traders' expectations of the spot price on the day of delivery. 
B) is always above the spot price on the day of delivery. 
C) is always below the spot price on the day of delivery. 
D) is always equal to the spot price at every point in time. 
A) reflects traders' expectations of the spot price on the day of delivery. 
B) is always above the spot price on the day of delivery. 
C) is always below the spot price on the day of delivery. 
D) is always equal to the spot price at every point in time.

Question 11

Spot transactions

Accepted Answer

A) involve immediate settlement. 
B) may only take place in face-to-face trading. 
C) take place on-the-spot, rather than on an organized exchange. 
D) are relatively unimportant in financial markets. 
A) involve immediate settlement. 
B) may only take place in face-to-face trading. 
C) take place on-the-spot, rather than on an organized exchange. 
D) are relatively unimportant in financial markets.

Question 12

Suppose you purchase a call option to buy IBM common stock at $35 per share in September. The current price of IBM is 37 and the option premium is 4. What is the intrinsic value of the option? As the expiration date on the option approaches, what will happen to the size of the option premium?

Accepted Answer

The intrinsic value of the option is the

Question 13

A lender who is worried that its cost of funds might rise during the term of a loan it has made can hedge against this rise by

Accepted Answer

A) buying futures contracts on Treasury bills. 
B) selling futures contracts on Treasury bills. 
C) buying call options on Treasury bills. 
D) increasing the amount of money which it lends. 
A) buying futures contracts on Treasury bills. 
B) selling futures contracts on Treasury bills. 
C) buying call options on Treasury bills. 
D) increasing the amount of money which it lends.

Question 14

If the price of a futures contract increases, then

Accepted Answer

A) the exchange will collect the amount of the increase from the seller of the contract and transfer it to the account of the buyer of the contract. 
B) the exchange will collect the amount of the increase from the buyer of the contract and transfer it to the account of the seller of the contract. 
C) the exchange will collect the amount of the increase from both the buyer and the seller and place it in escrow until the delivery date. 
D) the additional funds will be required from either the buyer or the seller until the delivery date. 
A) the exchange will collect the amount of the increase from the seller of the contract and transfer it to the account of the buyer of the contract. 
B) the exchange will collect the amount of the increase from the buyer of the contract and transfer it to the account of the seller of the contract. 
C) the exchange will collect the amount of the increase from both the buyer and the seller and place it in escrow until the delivery date. 
D) the additional funds will be required from either the buyer or the seller until the delivery date.

Question 15

The existence of counterparty risk

Accepted Answer

A) has no effect on the contracting parties. 
B) is disallowed under current government regulations. 
C) results in information costs for buyers and sellers when analyzing the potential creditworthiness of potential trading partners. 
D) reduces the risk introduced by forward contracts. 
A) has no effect on the contracting parties. 
B) is disallowed under current government regulations. 
C) results in information costs for buyers and sellers when analyzing the potential creditworthiness of potential trading partners. 
D) reduces the risk introduced by forward contracts.

Question 16

Which of the following is NOT a benefit of derivatives?

Accepted Answer

A) risk sharing 
B) guaranteed minimum profit 
C) liquidity 
D) information services 
A) risk sharing 
B) guaranteed minimum profit 
C) liquidity 
D) information services

Question 17

Suppose you purchase a call option with a strike price of $85 for an options price of $10 How much profit will you earn if you exercise it when the price is $100?

Accepted Answer

You will earn $15 mi

Question 18

Using forward transactions allows

Accepted Answer

A) holders of common stock to lock in future dividend payments. 
B) the federal government to stabilize fluctuations in tax receipts. 
C) corporations to reduce problems arising from future fluctuations in their dividend payments. 
D) both buyers and sellers to reduce risks associated with price fluctuations. 
A) holders of common stock to lock in future dividend payments. 
B) the federal government to stabilize fluctuations in tax receipts. 
C) corporations to reduce problems arising from future fluctuations in their dividend payments. 
D) both buyers and sellers to reduce risks associated with price fluctuations.

Question 19

The most important derivative instruments are

Accepted Answer

A) futures, options, and swaps. 
B) common and preferred stocks. 
C) corporate bonds. 
D) government bonds. 
A) futures, options, and swaps. 
B) common and preferred stocks. 
C) corporate bonds. 
D) government bonds.

Question 20

In a put options contract, the

Accepted Answer

A) seller has the obligation to receive the instrument at a specified time. 
B) buyer has the obligation to deliver the instrument at a specified time. 
C) buyer has the obligation to receive the instrument at a specified time. 
D) seller has the obligation to deliver the instrument at a specified time. 
A) seller has the obligation to receive the instrument at a specified time. 
B) buyer has the obligation to deliver the instrument at a specified time. 
C) buyer has the obligation to receive the instrument at a specified time. 
D) seller has the obligation to deliver the instrument at a specified time.

Swaps differ from futures and options in all of the following ways EXCEPT:

The seller of a futures contract

Speculators are primarily interested in

Which of the following statements about the presence of speculators in futures markets is correct?

An option buyer

Compare the rights and obligations of buyers and sellers of futures contracts with the rights of buyers and sellers of options contracts.

Which of the following statements is NOT true of the VIX?

Futures trading has traditionally been dominated by

When talking about forward contracts, the date on which the contracted delivery must take place is called:

The futures price

Spot transactions

Suppose you purchase a call option to buy IBM common stock at $35 per share in September. The current price of IBM is 37 and the option premium is 4. What is the intrinsic value of the option? As the expiration date on the option approaches, what will happen to the size of the option premium?

A lender who is worried that its cost of funds might rise during the term of a loan it has made can hedge against this rise by

If the price of a futures contract increases, then

The existence of counterparty risk

Which of the following is NOT a benefit of derivatives?

Suppose you purchase a call option with a strike price of $85 for an options price of $10 How much profit will you earn if you exercise it when the price is $100?

Using forward transactions allows

The most important derivative instruments are

In a put options contract, the

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

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Exam 7: Derivatives and Derivative Markets

Swaps differ from futures and options in all of the following ways EXCEPT:

The seller of a futures contract

Speculators are primarily interested in

Which of the following statements about the presence of speculators in futures markets is correct?

An option buyer

Compare the rights and obligations of buyers and sellers of futures contracts with the rights of buyers and sellers of options contracts.

Which of the following statements is NOT true of the VIX?

Futures trading has traditionally been dominated by

When talking about forward contracts, the date on which the contracted delivery must take place is called:

The futures price

Spot transactions

Suppose you purchase a call option to buy IBM common stock at $35 per share in September. The current price of IBM is 37 and the option premium is 4. What is the intrinsic value of the option? As the expiration date on the option approaches, what will happen to the size of the option premium?

A lender who is worried that its cost of funds might rise during the term of a loan it has made can hedge against this rise by

If the price of a futures contract increases, then

The existence of counterparty risk

Which of the following is NOT a benefit of derivatives?

Suppose you purchase a call option with a strike price of $85 for an options price of $10 How much profit will you earn if you exercise it when the price is $100?

Using forward transactions allows

The most important derivative instruments are

In a put options contract, the

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters