Question 1

A contract that gives the holder the right to sell a security at a preset price only immediately before contract expiration is a(n)

Accepted Answer

A) American call option. 
B) European call option. 
C) American put option. 
D) European put option. 
E) knockout option. 
A) American call option. 
B) European call option. 
C) American put option. 
D) European put option. 
E) knockout option.

Question 2

If you think that interest rates are likely to rise substantially over the next several years,you might sell a T-bond futures contract or buy an interest rate cap to take advantage of your expectations.

Accepted Answer

A) True 
 B)False

Question 3

An interest rate collar is

Accepted Answer

A) writing a floor and writing a cap. 
B) buying a cap and writing a floor. 
C) an option on a futures contract. 
D) buying a cap and buying a floor. 
E) none of the options. 
A) writing a floor and writing a cap. 
B) buying a cap and writing a floor. 
C) an option on a futures contract. 
D) buying a cap and buying a floor. 
E) none of the options.

Question 4

FNMA has direct holdings of 30-year fixed-rate mortgages financed by three- to five-year agency securities sold to the public.

Accepted Answer

What kind of interest rate option could

Question 5

When would an option hedge be better than a futures or forward hedge?

Accepted Answer

An option hedge is better than a futures

Question 6

A higher level of which of the following variables would make a put option on common stock more valuable,ceteris paribus?
I. Stock price
II. Stock price volatility
III. Interest rates
IV. Exercise price

Accepted Answer

A) II only 
B) II and IV only 
C) I,II,and III only 
D) I,III,and IV only 
E) I,II,III,and IV 
A) II only 
B) II and IV only 
C) I,II,and III only 
D) I,III,and IV only 
E) I,II,III,and IV

Question 7

The higher the exercise price,the ________________ the value of a put and the _______________ the value of a call.

Accepted Answer

A) higher; higher 
B) lower; lower 
C) higher; lower 
D) lower; higher 
A) higher; higher 
B) lower; lower 
C) higher; lower 
D) lower; higher

Question 8

FNMA has direct holdings of 30-year fixed-rate mortgages financed by three- to five-year agency securities sold to the public.

Accepted Answer

What kind of interest rate swap could FN

Question 9

What determines the success or failure of an exchange-traded derivative contract?
 Why were currency and interest rate futures introduced in the early and late 1970s,respectively?

Accepted Answer

The success of derivative contracts depe

Question 10

An agreement between two parties to exchange a series of specified periodic cash flows in the future based on some underlying instrument or price is a(n)

Accepted Answer

A) forward agreement. 
B) futures contract. 
C) interest rate collar. 
D) option contract. 
E) swap contract. 
A) forward agreement. 
B) futures contract. 
C) interest rate collar. 
D) option contract. 
E) swap contract.

Question 11

A stock is priced at $33.25. The stock has 35 call options that expire in 60 days. The underlying stock price volatility is 39 percent per year and the annual risk-free rate is 4.5 percent. According to the Black-Scholes option pricing model,what is the most you should be willing to pay for this call option?

Accepted Answer

@#IMG-DLM& Using the Normsdist function in Excel t

Question 12

Two competing fully electronic derivatives markets in the United States are

Accepted Answer

A) CME Globex and Eurex. 
B) Philadelphia Exchange and AMEX. 
C) NYSE and ABS. 
D) CME and Pacific Exchange. 
E) D-Trade and IMM. 
A) CME Globex and Eurex. 
B) Philadelphia Exchange and AMEX. 
C) NYSE and ABS. 
D) CME and Pacific Exchange. 
E) D-Trade and IMM.

Question 13

When might an option on a futures contract be preferable to an option on the underlying instrument?

Accepted Answer

In general,the option on the futures wil

Question 14

The buyer of a call option on stock benefits if the underlying stock price rises or if the volatility of the stock's price increases.

Accepted Answer

A) True 
 B)False

Question 15

In a bear market,which option positions make money?
I. Buying a call
II. Writing a call
III. Buying a put
IV. Writing a put

Accepted Answer

A) I and II 
B) I and III 
C) II and IV 
D) II and III 
E) I and IV 
A) I and II 
B) I and III 
C) II and IV 
D) II and III 
E) I and IV

Question 16

An in the money American call option increases in value as expiration approaches,but an out of the money American call option decreases in value as expiration approaches.

Accepted Answer

A) True 
 B)False

Question 17

European-style options are options that may only be exercised at maturity.

Accepted Answer

A) True 
 B)False

Question 18

A bank lender is concerned about the creditworthiness of one of its major borrowers. The bank is considering using a swap to reduce its credit exposure to this customer. Which type of swap would best meet this need?

Accepted Answer

A) Interest rate swap 
B) Currency swap 
C) Equity linked swap 
D) Credit default swap 
E) DIF swap 
A) Interest rate swap 
B) Currency swap 
C) Equity linked swap 
D) Credit default swap 
E) DIF swap

Question 19

A contract wherein the buyer agrees to pay a specified interest rate on a loan that will be originated at some future time is called a(n)

Accepted Answer

A) forward rate agreement. 
B) futures loan. 
C) option on a futures contract. 
D) interest rate swap contract. 
E) currency swap contract. 
A) forward rate agreement. 
B) futures loan. 
C) option on a futures contract. 
D) interest rate swap contract. 
E) currency swap contract.

Question 20

Futures or option exchange members who take positions on contracts for only a few moments are called scalpers.

Accepted Answer

A) True 
 B)False

Exam 10: Derivative Securities Markets

A contract that gives the holder the right to sell a security at a preset price only immediately before contract expiration is a(n)

If you think that interest rates are likely to rise substantially over the next several years,you might sell a T-bond futures contract or buy an interest rate cap to take advantage of your expectations.

An interest rate collar is

FNMA has direct holdings of 30-year fixed-rate mortgages financed by three- to five-year agency securities sold to the public.

When would an option hedge be better than a futures or forward hedge?

A higher level of which of the following variables would make a put option on common stock more valuable,ceteris paribus? I. Stock price II. Stock price volatility III. Interest rates IV. Exercise price

The higher the exercise price,the ________________ the value of a put and the _______________ the value of a call.

FNMA has direct holdings of 30-year fixed-rate mortgages financed by three- to five-year agency securities sold to the public.

What determines the success or failure of an exchange-traded derivative contract? Why were currency and interest rate futures introduced in the early and late 1970s,respectively?

An agreement between two parties to exchange a series of specified periodic cash flows in the future based on some underlying instrument or price is a(n)

Two competing fully electronic derivatives markets in the United States are

When might an option on a futures contract be preferable to an option on the underlying instrument?

The buyer of a call option on stock benefits if the underlying stock price rises or if the volatility of the stock's price increases.

In a bear market,which option positions make money? I. Buying a call II. Writing a call III. Buying a put IV. Writing a put

An in the money American call option increases in value as expiration approaches,but an out of the money American call option decreases in value as expiration approaches.

European-style options are options that may only be exercised at maturity.

A bank lender is concerned about the creditworthiness of one of its major borrowers. The bank is considering using a swap to reduce its credit exposure to this customer. Which type of swap would best meet this need?

A contract wherein the buyer agrees to pay a specified interest rate on a loan that will be originated at some future time is called a(n)

Futures or option exchange members who take positions on contracts for only a few moments are called scalpers.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

The higher the exercise price,the __ the value of a put and the _ the value of a call.