Question 1

In options markets,the price paid by an option buyer to the writer of the option is the:

Accepted Answer

A)  call price. 
B)  premium. 
C)  put price. 
D)  strike price. 
A)  call price. 
B)  premium. 
C)  put price. 
D)  strike price.

Question 2

The main feature of the potential profit and loss profile for a long put party may be best described as:

Accepted Answer

A)  the further the spot price is above the exercise price, the greater the profit. 
B)  profits are made from exercising an option when the spot price falls below the exercise price adjusted for the premium. 
C)  a loss is sustained if the spot price is less than the exercise price. 
D)  all of the given answers. 
A)  the further the spot price is above the exercise price, the greater the profit. 
B)  profits are made from exercising an option when the spot price falls below the exercise price adjusted for the premium. 
C)  a loss is sustained if the spot price is less than the exercise price. 
D)  all of the given answers.

Question 3

If interest rates increase the value of a put option declines.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements best reflects the following profit profile of an option contract?

Accepted Answer

A)  The profile depicts the short call position of the option seller. 
B)  The profile depicts the long call position of the buyer of the option. 
C)  The profile depicts the short put position of the option seller. 
D)  The profile depicts the long put position of the buyer of the option. 
A)  The profile depicts the short call position of the option seller. 
B)  The profile depicts the long call position of the buyer of the option. 
C)  The profile depicts the short put position of the option seller. 
D)  The profile depicts the long put position of the buyer of the option.

Question 5

Which of the following statements best reflects the following profit profile of an option contract?

Accepted Answer

A)  The profile depicts the short call position of the option seller. 
B)  The profile depicts the long call position of the buyer of the option. 
C)  The profile depicts the short put position of the option seller. 
D)  The profile depicts the long put position of the buyer of the option. 
A)  The profile depicts the short call position of the option seller. 
B)  The profile depicts the long call position of the buyer of the option. 
C)  The profile depicts the short put position of the option seller. 
D)  The profile depicts the long put position of the buyer of the option.

Question 6

An investor with a very bearish attitude can limit their attitude by:

Accepted Answer

A)  long straddle. 
B)  horizontal bull spread. 
C)  vertical bull spread. 
D)  short straddle. 
A)  long straddle. 
B)  horizontal bull spread. 
C)  vertical bull spread. 
D)  short straddle.

Question 7

When we contrast futures with options contracts,we can say that:

Accepted Answer

A)  in a futures contract, the buyer and seller have asymmetric rights, whereas in an options contract the buyer and writer have symmetric rights. 
B)  in a futures contract the buyer and seller have symmetric rights, whereas in an options contract the buyer and writer have asymmetric rights. 
C)  for both futures contracts and options contracts the buyer and writer have symmetric rights. 
D)  for both futures contracts and options contracts the buyer and writer have asymmetric rights. 
A)  in a futures contract, the buyer and seller have asymmetric rights, whereas in an options contract the buyer and writer have symmetric rights. 
B)  in a futures contract the buyer and seller have symmetric rights, whereas in an options contract the buyer and writer have asymmetric rights. 
C)  for both futures contracts and options contracts the buyer and writer have symmetric rights. 
D)  for both futures contracts and options contracts the buyer and writer have asymmetric rights.

Question 8

Which of the following is NOT a condition applied to call options listed on the Australian Securities Exchange (ASX Trade)on leading ordinary shares?

Accepted Answer

A)  Typically, there are numerous option contracts offered on a particular share over a range of expiration dates. 
B)  A long call option buyer must meet the deposit and margin calls of the clearing house whereas the writer does not have to. 
C)  Typically, three or more options are traded with the same expiration date, but with different strike prices. 
D)  The Options Clearing House handles the assignment of option contract exercise notices submitted by buyers. 
A)  Typically, there are numerous option contracts offered on a particular share over a range of expiration dates. 
B)  A long call option buyer must meet the deposit and margin calls of the clearing house whereas the writer does not have to. 
C)  Typically, three or more options are traded with the same expiration date, but with different strike prices. 
D)  The Options Clearing House handles the assignment of option contract exercise notices submitted by buyers.

Question 9

Which of the following variables affect the value of options?
i.Difficulty of interest rates
ii.Time to maturity of the option
iii.Share price volatility
iv.Dividend yield on the underlying share

Accepted Answer

A)  i and iv only 
B)  ii and iii only 
C)  i, ii and iv only 
D)  i, ii, iii and iv 
A)  i and iv only 
B)  ii and iii only 
C)  i, ii and iv only 
D)  i, ii, iii and iv

Question 10

If an investor with a somewhat bearish attitude owns some shares but does not as yet want to sell,then they can limit their downside exposure to a price fall by:

Accepted Answer

A)  engaging in a vertical bull spread. 
B)  by writing a call option on the shares. 
C)  by engaging in a call bull spread. 
D)  by engaging in a put bear spread. 
A)  engaging in a vertical bull spread. 
B)  by writing a call option on the shares. 
C)  by engaging in a call bull spread. 
D)  by engaging in a put bear spread.

Question 11

In the options markets,for a call option,the:

Accepted Answer

A)  buyer is committed to receive the underlying asset at a specified time. 
B)  seller is committed to deliver the specified asset at a specified time. 
C)  seller may choose whether or not to deliver the underlying asset at a specified time. 
D)  buyer will choose to exercise the option if the price of the underlying asset has fallen below the exercise price. 
A)  buyer is committed to receive the underlying asset at a specified time. 
B)  seller is committed to deliver the specified asset at a specified time. 
C)  seller may choose whether or not to deliver the underlying asset at a specified time. 
D)  buyer will choose to exercise the option if the price of the underlying asset has fallen below the exercise price.

Question 12

In the options markets a put option is regarded as being in-the-money if:

Accepted Answer

A)  it is written on a Treasury bond or another money market instrument. 
B)  it has increased in value since it was first written. 
C)  the price of the underlying asset is currently less than the strike price. 
D)  the price of the underlying asset is currently less than the strike price plus the option premium. 
A)  it is written on a Treasury bond or another money market instrument. 
B)  it has increased in value since it was first written. 
C)  the price of the underlying asset is currently less than the strike price. 
D)  the price of the underlying asset is currently less than the strike price plus the option premium.

Question 13

On the expiration date for a call option with strike price of $10.00,premium $1.50 and the current spot price of $9.00,the holder will:

Accepted Answer

A)  have a total loss of $2.50 
B)  let the option contract lapse. 
C)  sell the shares at $9.00 
D)  close it out by buying a put option. 
A)  have a total loss of $2.50 
B)  let the option contract lapse. 
C)  sell the shares at $9.00 
D)  close it out by buying a put option.

Question 14

Discuss some characteristics of writers of covered and uncovered call options.

Accepted Answer

For an exchange-traded option the writer

Question 15

The advantages of using an American type option compared to a European type option:

Accepted Answer

A)  is American options are cheaper. 
B)  have a longer maturity date. 
C)  have lower volatility. 
D)  can be exercised at any time up to maturity. 
A)  is American options are cheaper. 
B)  have a longer maturity date. 
C)  have lower volatility. 
D)  can be exercised at any time up to maturity.

Question 16

On the expiration date for a put option with strike price of $10.00,premium $1.50 and the current spot price of $8.00,the holder will:

Accepted Answer

A)  buy the shares in the market place. 
B)  let the option contract lapse. 
C)  exercise the option. 
D)  make a profit of $1.50 
A)  buy the shares in the market place. 
B)  let the option contract lapse. 
C)  exercise the option. 
D)  make a profit of $1.50

Question 17

An investor purchases a call option at a premium of $1.25,with an exercise price of $7.50 within three months.The holder of the option will:

Accepted Answer

A)  be in-the-money if the market price of the shares reaches $6.25 
B)  only exercise the option if the current market price reaches or exceeds $8.75 
C)  exercise the option at any price above $7.50, if necessary. 
D)  break even at a market price of $7.50, and will exercise the option. 
A)  be in-the-money if the market price of the shares reaches $6.25 
B)  only exercise the option if the current market price reaches or exceeds $8.75 
C)  exercise the option at any price above $7.50, if necessary. 
D)  break even at a market price of $7.50, and will exercise the option.

Question 18

In options markets an American call option lets the buyer:

Accepted Answer

A)  buy the underlying asset at the exercise price on or before the expiration date. 
B)  buy the underlying asset at the exercise price only on the expiration date. 
C)  sell the underlying asset at the exercise price on or before the contract expiration date. 
D)  sell the underlying asset only at the expiration date. 
A)  buy the underlying asset at the exercise price on or before the expiration date. 
B)  buy the underlying asset at the exercise price only on the expiration date. 
C)  sell the underlying asset at the exercise price on or before the contract expiration date. 
D)  sell the underlying asset only at the expiration date.

Question 19

Option markets have some basic organisation features.Discuss

Accepted Answer

Option markets now operate in the major

Question 20

In the options markets,an American call option should have a higher premium than the comparable European call option because:

Accepted Answer

A)  it is more volatile in price. 
B)  it is less volatile in price. 
C)  it gives more flexibility to the holder. 
D)  a call would not be exercised unless the exercise price exceeded the share price. 
A)  it is more volatile in price. 
B)  it is less volatile in price. 
C)  it gives more flexibility to the holder. 
D)  a call would not be exercised unless the exercise price exceeded the share price.

Exam 20: Options

In options markets,the price paid by an option buyer to the writer of the option is the:

The main feature of the potential profit and loss profile for a long put party may be best described as:

If interest rates increase the value of a put option declines.

Which of the following statements best reflects the following profit profile of an option contract?

Which of the following statements best reflects the following profit profile of an option contract?

An investor with a very bearish attitude can limit their attitude by:

When we contrast futures with options contracts,we can say that:

Which of the following is NOT a condition applied to call options listed on the Australian Securities Exchange (ASX Trade)on leading ordinary shares?

Which of the following variables affect the value of options? i.Difficulty of interest rates ii.Time to maturity of the option iii.Share price volatility iv.Dividend yield on the underlying share

If an investor with a somewhat bearish attitude owns some shares but does not as yet want to sell,then they can limit their downside exposure to a price fall by:

In the options markets,for a call option,the:

In the options markets a put option is regarded as being in-the-money if:

On the expiration date for a call option with strike price of $10.00,premium $1.50 and the current spot price of $9.00,the holder will:

Discuss some characteristics of writers of covered and uncovered call options.

The advantages of using an American type option compared to a European type option:

On the expiration date for a put option with strike price of $10.00,premium $1.50 and the current spot price of $8.00,the holder will:

An investor purchases a call option at a premium of $1.25,with an exercise price of $7.50 within three months.The holder of the option will:

In options markets an American call option lets the buyer:

Option markets have some basic organisation features.Discuss

In the options markets,an American call option should have a higher premium than the comparable European call option because:

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

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