Exam 24: Hedging with Financial Derivatives

Explain the advantages of protecting against interest-rate risk using options rather than futures contracts.

Which of the following features of Treasury bond futures contracts were not designed to increase liquidity?

The risk that occurs because stock prices fluctuate is called ________.

The agency which regulates futures options is the

All other things held constant,premiums on call options will increase when the

A valid concern about financial derivatives is that

The price specified in an option contract at which the holder can buy or sell the underlying asset is called the ________.

If you buy an option to sell Treasury futures at 110,and at expiration the market price is 115,

Discuss the challenges regulators face in controlling the use of derivatives by financial institutions.

One problem with a futures contract is finding a counterparty.

If Second National Bank has more rate-sensitive liabilities than rate-sensitive assets,it can reduce interest-rate risk with a swap which requires Second National to

To reduce the interest-rate risk of holding a portfolio of bonds,Treasury bond futures contracts should be bought.

Using options to control interest-rate risk reduces the chance of a loss but increases the chance of a gain.

An increase in the volatility of the underlying asset,all other things held constant,will ________ the option premium.

Explain the difference between a macro hedge and a micro hedge for a financial institution.

Explain how a swap could be used to reduce interest-rate risk for a bank with more rate-sensitive assets than rate-sensitive liabilities.

A short contract obligates the holder to sell securities in the future.

Option premiums fall as the volatility of the underlying asset falls.

If you sell a short contract on financial futures,you hope interest rates will ________.

Currency swaps involve the exchange of a set of payments on one currency for a set of payments in another.