Question 1

In the futures markets,if a futures contract is marked-to-market,this refers to the:

Accepted Answer

A)  interaction of the demand and supply forces in the market to determine the price of the options contract. 
B)  interaction of the demand and supply forces in the market to determine the price of the futures contract. 
C)  settlement of gains and losses on futures contracts on a daily basis. 
D)  settlement of gains and losses on forward contracts on a daily basis. 
A)  interaction of the demand and supply forces in the market to determine the price of the options contract. 
B)  interaction of the demand and supply forces in the market to determine the price of the futures contract. 
C)  settlement of gains and losses on futures contracts on a daily basis. 
D)  settlement of gains and losses on forward contracts on a daily basis.

Question 2

A forward rate agreement (FRA)is an interest rate risk-management product,generally provided by banks over the-counter.Which of the following statements regarding forward rate agreements is correct?

Accepted Answer

A)  FRAs are not standardised with regard to contract period and amount. 
B)  The centralised clearing house (CCH) holds the deposits and margin calls. 
C)  As a bank is the counterparty to the FRA, there is no credit risk. 
D)  All of the given answers. 
A)  FRAs are not standardised with regard to contract period and amount. 
B)  The centralised clearing house (CCH) holds the deposits and margin calls. 
C)  As a bank is the counterparty to the FRA, there is no credit risk. 
D)  All of the given answers.

Question 3

A futures contract is an agreement that specifies the delivery of a commodity or financial security at a:

Accepted Answer

A)  predetermined future date, with a price to be negotiated at the time of delivery. 
B)  predetermined future date, with a currently agreed-on price. 
C)  currently agreed-on price, with a delivery date to be negotiated later. 
D)  predetermined future date, with a price and delivery to be negotiated later. 
A)  predetermined future date, with a price to be negotiated at the time of delivery. 
B)  predetermined future date, with a currently agreed-on price. 
C)  currently agreed-on price, with a delivery date to be negotiated later. 
D)  predetermined future date, with a price and delivery to be negotiated later.

Question 4

The advantage of using a forward rate agreement FRA over a futures contract is:

Accepted Answer

A)  FRAs are highly standardised. 
B)  FRAs have only an initial margin and no ongoing maintenance margin. 
C)  the terms and conditions of a FRA can be negotiated. 
D)  FRAs have standardised maturities. 
A)  FRAs are highly standardised. 
B)  FRAs have only an initial margin and no ongoing maintenance margin. 
C)  the terms and conditions of a FRA can be negotiated. 
D)  FRAs have standardised maturities.

Question 5

If a client investor is holding a large number of listed shares on the ASX,intends to sell in three months' time and wishes to protect the value of the share portfolio,they may:

Accepted Answer

A)  buy a futures contract based on the S&P/ASX. 
B)  sell a futures contract based on the S&P/ASX. 
C)  write a put option based on the S&P/ASX. 
D)  buy a call option based on the S&P/ASX. 
A)  buy a futures contract based on the S&P/ASX. 
B)  sell a futures contract based on the S&P/ASX. 
C)  write a put option based on the S&P/ASX. 
D)  buy a call option based on the S&P/ASX.

Question 6

What is operational risk in relation to an organisation?

Accepted Answer

Operational risk refers to the risk of l

Question 7

The prime function of a futures clearing house is to bring together the buyer and seller in each futures contract.

Accepted Answer

A) True 
 B)False

Question 8

The analysis that documents each risk exposure and then tries to measure what will be the operational and financial effect should the risk event occur is called:

Accepted Answer

A)  hedging analysis. 
B)  cost-benefit analysis. 
C)  business impact analysis. 
D)  SMART analysis. 
A)  hedging analysis. 
B)  cost-benefit analysis. 
C)  business impact analysis. 
D)  SMART analysis.

Question 9

The European call option gives the option buyer the right to exercise the option:

Accepted Answer

A)  at any time up to the expiration date. 
B)  only on the expiration date. 
C)  if the price of the underlying asset falls below the exercise price. 
D)  immediately after the payment of dividends. 
A)  at any time up to the expiration date. 
B)  only on the expiration date. 
C)  if the price of the underlying asset falls below the exercise price. 
D)  immediately after the payment of dividends.

Question 10

Which of the following is NOT an example of financial risk exposure for a company?

Accepted Answer

A)  When interest rates increase and a larger proportion of mortgage payments are in default for a bank 
B)  When a local currency decreases for an exporter 
C)  When a company has taken out a short-term loan and floating interest rates increase 
D)  When interest rates increase for a highly geared company 
A)  When interest rates increase and a larger proportion of mortgage payments are in default for a bank 
B)  When a local currency decreases for an exporter 
C)  When a company has taken out a short-term loan and floating interest rates increase 
D)  When interest rates increase for a highly geared company

Question 11

In the futures markets,the price of a derivative contract for gold is based on:

Accepted Answer

A)  prices of gold mining companies. 
B)  price of gold in the spot markets. 
C)  price of gold in the forward markets. 
D)  price of gold commodity indexes. 
A)  prices of gold mining companies. 
B)  price of gold in the spot markets. 
C)  price of gold in the forward markets. 
D)  price of gold commodity indexes.

Question 12

When an oil company suffers severe damage to one of its oil drilling platforms,this is an example of:

Accepted Answer

A)  technological risk. 
B)  financial risk. 
C)  business risk. 
D)  operational risk. 
A)  technological risk. 
B)  financial risk. 
C)  business risk. 
D)  operational risk.

Question 13

Derivative markets exist in order to:

Accepted Answer

A)  allow for the direct cash sale of common shares. 
B)  allow for the direct cash sale of corporate bonds. 
C)  reduce the risk of exposure to price fluctuations in cash markets. 
D)  overcome some of the information problems involved in trades in over-the-counter markets. 
A)  allow for the direct cash sale of common shares. 
B)  allow for the direct cash sale of corporate bonds. 
C)  reduce the risk of exposure to price fluctuations in cash markets. 
D)  overcome some of the information problems involved in trades in over-the-counter markets.

Question 14

When two parties exchange the respective interest payments associated with existing debt borrowed in the capital markets,this is called a/an:

Accepted Answer

A)  interest exchange. 
B)  financial switch. 
C)  swap. 
D)  financial transfer. 
A)  interest exchange. 
B)  financial switch. 
C)  swap. 
D)  financial transfer.

Question 15

For a call option,the:

Accepted Answer

A)  buyer is locked into receive the underlying asset at a specified time. 
B)  writer is committed to handing over the specified asset if the holder of the call exercises the option. 
C)  writer may choose whether or not to deliver the underlying asset at a specified time. 
D)  buyer will choose to exercise the option only if the price of the underlying asset falls. 
A)  buyer is locked into receive the underlying asset at a specified time. 
B)  writer is committed to handing over the specified asset if the holder of the call exercises the option. 
C)  writer may choose whether or not to deliver the underlying asset at a specified time. 
D)  buyer will choose to exercise the option only if the price of the underlying asset falls.

Question 16

Which of the following businesses are most exposed to interest rate risk?

Accepted Answer

A)  A company with a high equity to debt ratio 
B)  A company with a large amount of floating rate debt 
C)  An all-equity company 
D)  An investment company with an investment portfolio that matches its investment horizon 
A)  A company with a high equity to debt ratio 
B)  A company with a large amount of floating rate debt 
C)  An all-equity company 
D)  An investment company with an investment portfolio that matches its investment horizon

Question 17

In the derivative markets a swap is:

Accepted Answer

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

Question 18

In the option markets,the price specified in the contract at which the buyer of the option can buy or sell the specified commodity or financial instrument is called the:

Accepted Answer

A)  call price. 
B)  exercise price. 
C)  settlement price. 
D)  spot price. 
A)  call price. 
B)  exercise price. 
C)  settlement price. 
D)  spot price.

Question 19

If a company intends to borrow in three months' time,it can lock in its borrowing costs by:

Accepted Answer

A)  buying futures contracts. 
B)  selling futures contracts. 
C)  going long on futures contracts. 
D)  an arbitrage position on futures contracts. 
A)  buying futures contracts. 
B)  selling futures contracts. 
C)  going long on futures contracts. 
D)  an arbitrage position on futures contracts.

Question 20

For the writer of a put option,if the underlying share price:

Accepted Answer

A)  moves above the strike price the potential profits are unlimited. 
B)  drops below the strike price the potential profits are unlimited. 
C)  moves above the strike price, the potential profits are limited to the premium. 
D)  moves above the strike price, the premium is reduced by the difference. 
A)  moves above the strike price the potential profits are unlimited. 
B)  drops below the strike price the potential profits are unlimited. 
C)  moves above the strike price, the potential profits are limited to the premium. 
D)  moves above the strike price, the premium is reduced by the difference.

Exam 18: An Introduction to Risk Management and Derivatives

In the futures markets,if a futures contract is marked-to-market,this refers to the:

A forward rate agreement (FRA)is an interest rate risk-management product,generally provided by banks over the-counter.Which of the following statements regarding forward rate agreements is correct?

A futures contract is an agreement that specifies the delivery of a commodity or financial security at a:

The advantage of using a forward rate agreement FRA over a futures contract is:

If a client investor is holding a large number of listed shares on the ASX,intends to sell in three months' time and wishes to protect the value of the share portfolio,they may:

What is operational risk in relation to an organisation?

The prime function of a futures clearing house is to bring together the buyer and seller in each futures contract.

The analysis that documents each risk exposure and then tries to measure what will be the operational and financial effect should the risk event occur is called:

The European call option gives the option buyer the right to exercise the option:

Which of the following is NOT an example of financial risk exposure for a company?

In the futures markets,the price of a derivative contract for gold is based on:

When an oil company suffers severe damage to one of its oil drilling platforms,this is an example of:

Derivative markets exist in order to:

When two parties exchange the respective interest payments associated with existing debt borrowed in the capital markets,this is called a/an:

For a call option,the:

Which of the following businesses are most exposed to interest rate risk?

In the derivative markets a swap is:

In the option markets,the price specified in the contract at which the buyer of the option can buy or sell the specified commodity or financial instrument is called the:

If a company intends to borrow in three months' time,it can lock in its borrowing costs by:

For the writer of a put option,if the underlying share price:

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

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters