Exam 24: Hedging With Financial Derivatives

By selling short a futures contract of $100,000 at a price of 115, you are agreeing to deliver ________ face value securities for ________.

If a portfolio manager believes stock prices will fall and knows that a block of funds will be received in the future, then he should

Open interest allows investors to change the interest rate on futures contracts.

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

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

The use of financial derivatives by financial institutions to hedge can decrease risk. However, they can also increase risk. Which of the following examples illustrates this?

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

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

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

If Friendly Finance Company has more rate-sensitive assets than rate-sensitive liabilities, it may reduce risk with a swap.

Futures differ from forwards because they are

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

The 2007-2009 financial crisis illustrates that derivatives cannot be used to hedge -- financial institutions should be barred from using them in any form.

A forward contract is more flexible than a futures contract.