Question 1

How do exchanges seek to reduce default risk in the futures market?

Accepted Answer

Exchanges require both the buyer and sel

Question 2

Marking to market refers to

Accepted Answer

A) the determination of the prices of options contracts by the interaction of demand and supply. 
B) the determination of the prices of futures contracts by the interaction of demand and supply. 
C) the settlement of gains and losses on futures contracts each day. 
D) the settlement of gains and losses on forward contracts each day. 
A) the determination of the prices of options contracts by the interaction of demand and supply. 
B) the determination of the prices of futures contracts by the interaction of demand and supply. 
C) the settlement of gains and losses on futures contracts each day. 
D) the settlement of gains and losses on forward contracts each day.

Question 3

What does it mean to "cover a short"?

Accepted Answer

If the price of an asset in wh

Question 4

A shortcoming of swaps that has led to the domination of the swaps market by large firms and financial institutions is

Accepted Answer

A) the lack of privacy. 
B) need to assess creditworthiness. 
C) desire for more flexibility. 
D) limited size of the market. 
A) the lack of privacy. 
B) need to assess creditworthiness. 
C) desire for more flexibility. 
D) limited size of the market.

Question 5

Which of the following factors would tend to increase the size of the premium on an options contract?

Accepted Answer

A) The option is near its expiration date. 
B) The current default-risk-free interest rate is high. 
C) The price volatility of the underlying asset is low. 
D) The option is far away from its expiration date. 
A) The option is near its expiration date. 
B) The current default-risk-free interest rate is high. 
C) The price volatility of the underlying asset is low. 
D) The option is far away from its expiration date.

Question 6

What are the steps involved in using options for a short sale of a stock?

Accepted Answer

With a short sale, you borrow

Question 7

The intrinsic value of an option

Accepted Answer

A) is equal to the option premium. 
B) is the amount the option actually is worth if it is immediately exercised. 
C) is the amount the option is expected to be worth on its expiration date. 
D) is impossible to determine in the absence of information on the future prices of the underlying asset. 
A) is equal to the option premium. 
B) is the amount the option actually is worth if it is immediately exercised. 
C) is the amount the option is expected to be worth on its expiration date. 
D) is impossible to determine in the absence of information on the future prices of the underlying asset.

Question 8

Southwest Airlines relies on jet fuel to operate its planes. If it chooses to hedge against future changes in fuel prices, what positions (long or short)will it take in the spot and futures markets?

Accepted Answer

Southwest will take

Question 9

Futures trading practices in the United States are regulated by

Accepted Answer

A) the Chicago Board of Trade. 
B) the Chicago Mercantile Exchange. 
C) the Commodities Futures Trading Commission. 
D) the Board of Futures Trading. 
A) the Chicago Board of Trade. 
B) the Chicago Mercantile Exchange. 
C) the Commodities Futures Trading Commission. 
D) the Board of Futures Trading.

Question 10

Which of the following best characterizes the profit of a buyer of a futures contract?

Accepted Answer

A) spot price at settlement minus futures price at purchase 
B) futures price at settlement minus spot price at purchase 
C) futures price at purchase minus spot price at settlement 
D) spot price at purchase minus futures price at settlement 
A) spot price at settlement minus futures price at purchase 
B) futures price at settlement minus spot price at purchase 
C) futures price at purchase minus spot price at settlement 
D) spot price at purchase minus futures price at settlement

Question 11

An investor who is considering hedging by selling Treasury futures can also hedge by:

Accepted Answer

A) buying Treasury put options 
B) selling Treasury put options 
C) buying Treasury call options 
D) buying European Treasury options 
A) buying Treasury put options 
B) selling Treasury put options 
C) buying Treasury call options 
D) buying European Treasury options

Question 12

As an option nears its expiration date, the size of the premium approaches

Accepted Answer

A) zero. 
B) infinity. 
C) its intrinsic value. 
D) an amount which varies, depending on prevailing market interest rates on the expiration date. 
A) zero. 
B) infinity. 
C) its intrinsic value. 
D) an amount which varies, depending on prevailing market interest rates on the expiration date.

Question 13

Hedgers 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 14

The interest rate at which international banks loan to each other is called

Accepted Answer

A) LIBOR 
B) federal funds rate 
C) prime rate 
D) international bank lending rate 
A) LIBOR 
B) federal funds rate 
C) prime rate 
D) international bank lending rate

Question 15

Why do futures have lower information costs and higher liquidity than forward contracts?

Accepted Answer

The exchange stands as a counterparty to

Question 16

The price at which an option may be exercised is called the

Accepted Answer

A) market price. 
B) equilibrium price. 
C) strike price. 
D) fixed price. 
A) market price. 
B) equilibrium price. 
C) strike price. 
D) fixed price.

Question 17

In what ways do futures contracts differ from forward contracts?

Accepted Answer

Futures contracts are traded on exchange

Question 18

Which of the following is NOT an advantage of a futures contract over a forward contract?

Accepted Answer

A) reduced counterparty risk 
B) increased flexibility 
C) lower information cost 
D) increased liquidity 
A) reduced counterparty risk 
B) increased flexibility 
C) lower information cost 
D) increased liquidity

Question 19

A speculator who believes strongly that interest rates will fall would be likely to

Accepted Answer

A) buy futures contracts on Treasury bills. 
B) sell futures contracts on Treasury bills. 
C) sell Treasury bonds in the spot market. 
D) decrease now the amount of money which he lends. 
A) buy futures contracts on Treasury bills. 
B) sell futures contracts on Treasury bills. 
C) sell Treasury bonds in the spot market. 
D) decrease now the amount of money which he lends.

Question 20

A swap is

Accepted Answer

A) another name for a put option. 
B) another name for a call option. 
C) an agreement between two or more persons to exchange sets of cash flows over some future period. 
D) the name for the replacement of a futures contract by an options contract. 
A) another name for a put option. 
B) another name for a call option. 
C) an agreement between two or more persons to exchange sets of cash flows over some future period. 
D) the name for the replacement of a futures contract by an options contract.

How do exchanges seek to reduce default risk in the futures market?

Marking to market refers to

What does it mean to "cover a short"?

A shortcoming of swaps that has led to the domination of the swaps market by large firms and financial institutions is

Which of the following factors would tend to increase the size of the premium on an options contract?

What are the steps involved in using options for a short sale of a stock?

The intrinsic value of an option

Southwest Airlines relies on jet fuel to operate its planes. If it chooses to hedge against future changes in fuel prices, what positions (long or short)will it take in the spot and futures markets?

Futures trading practices in the United States are regulated by

Which of the following best characterizes the profit of a buyer of a futures contract?

An investor who is considering hedging by selling Treasury futures can also hedge by:

As an option nears its expiration date, the size of the premium approaches

Hedgers are primarily interested in

The interest rate at which international banks loan to each other is called

Why do futures have lower information costs and higher liquidity than forward contracts?

The price at which an option may be exercised is called the

In what ways do futures contracts differ from forward contracts?

Which of the following is NOT an advantage of a futures contract over a forward contract?

A speculator who believes strongly that interest rates will fall would be likely to

A swap is

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

How do exchanges seek to reduce default risk in the futures market?

Marking to market refers to

What does it mean to "cover a short"?

A shortcoming of swaps that has led to the domination of the swaps market by large firms and financial institutions is

Which of the following factors would tend to increase the size of the premium on an options contract?

What are the steps involved in using options for a short sale of a stock?

The intrinsic value of an option

Southwest Airlines relies on jet fuel to operate its planes. If it chooses to hedge against future changes in fuel prices, what positions (long or short)will it take in the spot and futures markets?

Futures trading practices in the United States are regulated by

Which of the following best characterizes the profit of a buyer of a futures contract?

An investor who is considering hedging by selling Treasury futures can also hedge by:

As an option nears its expiration date, the size of the premium approaches

Hedgers are primarily interested in

The interest rate at which international banks loan to each other is called

Why do futures have lower information costs and higher liquidity than forward contracts?

The price at which an option may be exercised is called the

In what ways do futures contracts differ from forward contracts?

Which of the following is NOT an advantage of a futures contract over a forward contract?

A speculator who believes strongly that interest rates will fall would be likely to

A swap is

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