Question 1

Which of the following is a source of profit for a swap dealer?

Accepted Answer

A)  Commission charged on the sale of bonds 
B)  Bid-ask spread 
C)  Margin account 
D)  Option premium 
A)  Commission charged on the sale of bonds 
B)  Bid-ask spread 
C)  Margin account 
D)  Option premium

Question 2

Both the seller and the buyer in a futures contract are required to put up margins.

Accepted Answer

A) True 
 B)False

Question 3

What is the basic difference between hedgers and speculators?

Accepted Answer

The difference between hedging and specu

Question 4

Discuss similarities and differences between futures contracts and forward contracts.

Accepted Answer

Both futures and forwards set an obligat

Question 5

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 6

A gasoline distributor buys a gasoline futures contract that requires acceptance of 42,000 gallons of gasoline at $0.94 per gallon.How is the account marked to market if gasoline futures close the next day at $0.97?

Accepted Answer

A)  A loss of $1,260 is posted to the account. 
B)  A gain of $1,260 is posted to the account. 
C)  A loss of $12,600 is posted to the account. 
D)  A gain of $12,600 is posted to the account. 
A)  A loss of $1,260 is posted to the account. 
B)  A gain of $1,260 is posted to the account. 
C)  A loss of $12,600 is posted to the account. 
D)  A gain of $12,600 is posted to the account.

Question 7

Engaging itself in a swap contract,a firm might agree to make a series of regular payments in one currency in return for receiving a series of payments in another currency.

Accepted Answer

A) True 
 B)False

Question 8

The effect of marking a futures contract to market is similar to:

Accepted Answer

A)  requiring daily payments from the contract buyer. 
B)  requiring daily payments from the contract seller. 
C)  closing the current position and opening a new position daily. 
D)  imposing a daily fee on both buyers and sellers. 
A)  requiring daily payments from the contract buyer. 
B)  requiring daily payments from the contract seller. 
C)  closing the current position and opening a new position daily. 
D)  imposing a daily fee on both buyers and sellers.

Question 9

Most actively traded forward contracts are written on:

Accepted Answer

A)  U.S. Treasury bills. 
B)  Standard and Poor's index. 
C)  eurodollar contracts. 
D)  foreign currencies. 
A)  U.S. Treasury bills. 
B)  Standard and Poor's index. 
C)  eurodollar contracts. 
D)  foreign currencies.

Question 10

If the market for corn futures has more prospective sellers than buyers,then one would expect:

Accepted Answer

A)  the price of corn futures to decrease. 
B)  the price of corn futures to increase. 
C)  some traders to change from seller to buyer. 
D)  the market to cease operations until demand is rebalanced. 
A)  the price of corn futures to decrease. 
B)  the price of corn futures to increase. 
C)  some traders to change from seller to buyer. 
D)  the market to cease operations until demand is rebalanced.

Question 11

Regarding the profitability of options,it is impossible for a producer who sells put options to lose more than the exercise price agreed on the option contract.

Accepted Answer

A) True 
 B)False

Question 12

What happens to the price of a futures contract as expiration draws closer?

Accepted Answer

A)  It exceeds the spot price of the asset. 
B)  It is exceeded by the spot price of the asset. 
C)  It approaches the spot price of the asset. 
D)  There is no relationship between futures price and spot price as the contract approaches expiration. 
A)  It exceeds the spot price of the asset. 
B)  It is exceeded by the spot price of the asset. 
C)  It approaches the spot price of the asset. 
D)  There is no relationship between futures price and spot price as the contract approaches expiration.

Question 13

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 14

Futures contracts are standardized to expire at one time each year.

Accepted Answer

A) True 
 B)False

Question 15

By using options a firm can protect against increase in raw material prices,while continuing to benefit from price decreases.

Accepted Answer

A) True 
 B)False

Question 16

The primary purpose of financial futures is to:

Accepted Answer

A)  benefit from increases in interest rates. 
B)  protect against swings in interest rates or prices of financial assets. 
C)  translate one currency into another. 
D)  guarantee the repayment of loan principal. 
A)  benefit from increases in interest rates. 
B)  protect against swings in interest rates or prices of financial assets. 
C)  translate one currency into another. 
D)  guarantee the repayment of loan principal.

Question 17

A producer that is worried about the future price that will be available when the product is to be sold can hedge this price risk by:

Accepted Answer

A)  buying a futures contract. 
B)  selling a futures contract. 
C)  buying a put option. 
D)  selling a call option. 
A)  buying a futures contract. 
B)  selling a futures contract. 
C)  buying a put option. 
D)  selling a call option.

Question 18

All companies work hard to hedge their exposure to price fluctuations.

Accepted Answer

A) True 
 B)False

Exam 24: Risk Management

Which of the following is a source of profit for a swap dealer?

Both the seller and the buyer in a futures contract are required to put up margins.

What is the basic difference between hedgers and speculators?

Discuss similarities and differences between futures contracts and forward contracts.

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

A gasoline distributor buys a gasoline futures contract that requires acceptance of 42,000 gallons of gasoline at $0.94 per gallon.How is the account marked to market if gasoline futures close the next day at $0.97?

Engaging itself in a swap contract,a firm might agree to make a series of regular payments in one currency in return for receiving a series of payments in another currency.

The effect of marking a futures contract to market is similar to:

Most actively traded forward contracts are written on:

If the market for corn futures has more prospective sellers than buyers,then one would expect:

Regarding the profitability of options,it is impossible for a producer who sells put options to lose more than the exercise price agreed on the option contract.

What happens to the price of a futures contract as expiration draws closer?

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

Futures contracts are standardized to expire at one time each year.

By using options a firm can protect against increase in raw material prices,while continuing to benefit from price decreases.

The primary purpose of financial futures is to:

A producer that is worried about the future price that will be available when the product is to be sold can hedge this price risk by:

All companies work hard to hedge their exposure to price fluctuations.

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Filters