Question 1

The initial deposit required by a buyer or seller of a futures contract is known as

Accepted Answer

A) credit. 
B) margin requirement. 
C) debit. 
D) marking. 
A) credit. 
B) margin requirement. 
C) debit. 
D) marking.

Question 2

The fee charged by the seller of an option is referred to as the

Accepted Answer

A) market price. 
B) option premium. 
C) futures fee. 
D) call price. 
A) market price. 
B) option premium. 
C) futures fee. 
D) call price.

Question 3

A call option is said to be "in the money" if

Accepted Answer

A) it is written on a Treasury bill or other money-market asset. 
B) it has increased in price since it was first written. 
C) the price of the underlying asset is currently greater than the strike price. 
D) the price of the underlying asset is currently greater than the strike price plus the option premium. 
A) it is written on a Treasury bill or other money-market asset. 
B) it has increased in price since it was first written. 
C) the price of the underlying asset is currently greater than the strike price. 
D) the price of the underlying asset is currently greater than the strike price plus the option premium.

Question 4

Which of the following referred to derivatives as "financial weapons of mass destruction?"

Accepted Answer

A) Ben Bernanke 
B) Barack Obama 
C) Warren Buffett 
D) Michael Lewis 
A) Ben Bernanke 
B) Barack Obama 
C) Warren Buffett 
D) Michael Lewis

Question 5

Forward transactions would be useful to

Accepted Answer

A) a government wanting to know the size of its future debt. 
B) a household wanting to reduce its future tax liability. 
C) a business wanting to know the cost of its funds on future loans. 
D) a business wanting to expand its operations in overseas markets. 
A) a government wanting to know the size of its future debt. 
B) a household wanting to reduce its future tax liability. 
C) a business wanting to know the cost of its funds on future loans. 
D) a business wanting to expand its operations in overseas markets.

Question 6

All of the following are problems cited by Warren Buffet as problems with derivatives not traded on exchanges EXCEPT

Accepted Answer

A) they are thinly traded which makes it difficult to determine their value. 
B) firms do not set aside reserves against potential losses. 
C) they involve substantial counterparty risk. 
D) they were not flexible enough due to lack of standardization. 
A) they are thinly traded which makes it difficult to determine their value. 
B) firms do not set aside reserves against potential losses. 
C) they involve substantial counterparty risk. 
D) they were not flexible enough due to lack of standardization.

Question 7

On the day of delivery

Accepted Answer

A) the spot price will equal the futures price. 
B) the spot price will be greater than the futures price by an amount equal to the current interest rate times the futures price. 
C) the futures price will be greater than the spot price by an amount equal to the current interest rate times the spot price. 
D) there is no necessary relation between the spot price and the futures price. 
A) the spot price will equal the futures price. 
B) the spot price will be greater than the futures price by an amount equal to the current interest rate times the futures price. 
C) the futures price will be greater than the spot price by an amount equal to the current interest rate times the spot price. 
D) there is no necessary relation between the spot price and the futures price.

Question 8

The seller of a futures contract

Accepted Answer

A) assumes the long position. 
B) has the obligation to deliver the underlying financial instrument at the specified date. 
C) has the obligation to receive the underlying financial instrument at the specified future date. 
D) may, at his or her option, deliver or receive the underlying financial instrument at the specified date. 
A) assumes the long position. 
B) has the obligation to deliver the underlying financial instrument at the specified date. 
C) has the obligation to receive the underlying financial instrument at the specified future date. 
D) may, at his or her option, deliver or receive the underlying financial instrument at the specified date.

Question 9

The person on the other side of a transaction is referred to as the:

Accepted Answer

A) derivator 
B) counterparty 
C) hedger 
D) speculator 
A) derivator 
B) counterparty 
C) hedger 
D) speculator

Question 10

If you buy a futures contract for U.S. Treasury bills and on the delivery date the interest rate on T-bills is lower than you expected, you will have

Accepted Answer

A) lost money on your long position. 
B) gained money on your long position. 
C) lost money on your short position. 
D) gained money on your short position. 
A) lost money on your long position. 
B) gained money on your long position. 
C) lost money on your short position. 
D) gained money on your short position.

Question 11

A futures contract is

Accepted Answer

A) an agreement that specifies the delivery of a commodity or financial instrument at an agreed-upon future date at a currently agreed-upon price. 
B) an agreement that specifies the delivery of a commodity or financial instrument at an agreed-upon future date, with the price to be negotiated at the time of delivery. 
C) an agreement that specifies the delivery of a commodity or financial instrument at a currently agreed-upon price, with date of delivery to be negotiated subsequently. 
D) an agreement that specifies the delivery of a commodity or financial instrument, with the price and date of delivery to be negotiated subsequently. 
A) an agreement that specifies the delivery of a commodity or financial instrument at an agreed-upon future date at a currently agreed-upon price. 
B) an agreement that specifies the delivery of a commodity or financial instrument at an agreed-upon future date, with the price to be negotiated at the time of delivery. 
C) an agreement that specifies the delivery of a commodity or financial instrument at a currently agreed-upon price, with date of delivery to be negotiated subsequently. 
D) an agreement that specifies the delivery of a commodity or financial instrument, with the price and date of delivery to be negotiated subsequently.

Question 12

Forward transactions originated in the market for

Accepted Answer

A) common stock. 
B) corporate bonds. 
C) government bonds. 
D) agricultural and other commodities. 
A) common stock. 
B) corporate bonds. 
C) government bonds. 
D) agricultural and other commodities.

Question 13

Which best describes a credit default swap?

Accepted Answer

A) It is designed to reduce interest-rate risk. 
B) The issuer receives payments from the buyer in return for agreeing to make payments to the buyer if the security goes into default. 
C) Issuers are taking out insurance in case of default. 
D) It represents a way for the issuer to establish its creditworthiness. 
A) It is designed to reduce interest-rate risk. 
B) The issuer receives payments from the buyer in return for agreeing to make payments to the buyer if the security goes into default. 
C) Issuers are taking out insurance in case of default. 
D) It represents a way for the issuer to establish its creditworthiness.

Question 14

The role of the Commodity Futures Trading Commission is to

Accepted Answer

A) set the prices of futures contracts. 
B) operate the Chicago Mercantile Exchange. 
C) operate the Chicago Board of Trade. 
D) monitor potential price manipulation in futures trading. 
A) set the prices of futures contracts. 
B) operate the Chicago Mercantile Exchange. 
C) operate the Chicago Board of Trade. 
D) monitor potential price manipulation in futures trading.

Question 15

Why do investors hedge using futures contracts?

Accepted Answer

A) they are seeking to increase liquidity 
B) they are willing to pay for a reduction in risk 
C) in order to provide a counterparty to speculators 
D) they are more flexible than forward contracts 
A) they are seeking to increase liquidity 
B) they are willing to pay for a reduction in risk 
C) in order to provide a counterparty to speculators 
D) they are more flexible than forward contracts

Question 16

An advantage of a swap over futures and options is that

Accepted Answer

A) they can be written for long periods. 
B) they are more liquid. 
C) they carry less default risk. 
D) there is no need to assess the creditworthiness of participants. 
A) they can be written for long periods. 
B) they are more liquid. 
C) they carry less default risk. 
D) there is no need to assess the creditworthiness of participants.

Question 17

Why may some investors prefer forward contracts to futures?

Accepted Answer

Forward contracts ar

Question 18

Derivative instruments are

Accepted Answer

A) assets such as bonds or common stock that derive their value from the value of the companies which issue them. 
B) assets whose rates of returns must be derived from information published in financial tables. 
C) assets which derive their value from underlying assets. 
D) computers which display real-time financial information. 
A) assets such as bonds or common stock that derive their value from the value of the companies which issue them. 
B) assets whose rates of returns must be derived from information published in financial tables. 
C) assets which derive their value from underlying assets. 
D) computers which display real-time financial information.

Question 19

Financial futures contracts are regulated by

Accepted Answer

A) the Commodity Futures Trading Commission. 
B) the Federal Trade Commission. 
C) the Interstate Commerce Commission. 
D) the Options and Futures Commission. 
A) the Commodity Futures Trading Commission. 
B) the Federal Trade Commission. 
C) the Interstate Commerce Commission. 
D) the Options and Futures Commission.

Question 20

Forward contracts

Accepted Answer

A) are highly liquid. 
B) entail small information costs. 
C) provide little risk sharing. 
D) are subject to default risk. 
A) are highly liquid. 
B) entail small information costs. 
C) provide little risk sharing. 
D) are subject to default risk.

The initial deposit required by a buyer or seller of a futures contract is known as

The fee charged by the seller of an option is referred to as the

A call option is said to be "in the money" if

Which of the following referred to derivatives as "financial weapons of mass destruction?"

Forward transactions would be useful to

All of the following are problems cited by Warren Buffet as problems with derivatives not traded on exchanges EXCEPT

On the day of delivery

The seller of a futures contract

The person on the other side of a transaction is referred to as the:

If you buy a futures contract for U.S. Treasury bills and on the delivery date the interest rate on T-bills is lower than you expected, you will have

A futures contract is

Forward transactions originated in the market for

Which best describes a credit default swap?

The role of the Commodity Futures Trading Commission is to

Why do investors hedge using futures contracts?

An advantage of a swap over futures and options is that

Why may some investors prefer forward contracts to futures?

Derivative instruments are

Financial futures contracts are regulated by

Forward contracts

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

Exam 7: Derivatives and Derivative Markets

The initial deposit required by a buyer or seller of a futures contract is known as

The fee charged by the seller of an option is referred to as the

A call option is said to be "in the money" if

Which of the following referred to derivatives as "financial weapons of mass destruction?"

Forward transactions would be useful to

All of the following are problems cited by Warren Buffet as problems with derivatives not traded on exchanges EXCEPT

On the day of delivery

The seller of a futures contract

The person on the other side of a transaction is referred to as the:

If you buy a futures contract for U.S. Treasury bills and on the delivery date the interest rate on T-bills is lower than you expected, you will have

A futures contract is

Forward transactions originated in the market for

Which best describes a credit default swap?

The role of the Commodity Futures Trading Commission is to

Why do investors hedge using futures contracts?

An advantage of a swap over futures and options is that

Why may some investors prefer forward contracts to futures?

Derivative instruments are

Financial futures contracts are regulated by

Forward contracts

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