Question 1

An option that gives the owner the right to sell a financial instrument at the exercise price within a specified period of time is a(n)________.

Accepted Answer

A) call option 
B) put option 
C) American option 
D) European option 
A) call option 
B) put option 
C) American option 
D) European option

Question 2

The seller of an option has the

Accepted Answer

A) right to buy or sell the underlying asset. 
B) the obligation to buy or sell the underlying asset. 
C) ability to reduce transaction risk. 
D) right to exchange one payment stream for another. 
A) right to buy or sell the underlying asset. 
B) the obligation to buy or sell the underlying asset. 
C) ability to reduce transaction risk. 
D) right to exchange one payment stream for another.

Question 3

Why have the futures markets grown so rapidly in recent years?

Accepted Answer

The futures markets have experienced rap

Question 4

By selling short a futures contract of $100,000 at a price of 96, you are agreeing to deliver ________ face value securities for ________.

Accepted Answer

A) $100,000; $104,167 
B) $96,000; $100,000 
C) $100,000; $96,000 
D) $100,000; $100,000 
A) $100,000; $104,167 
B) $96,000; $100,000 
C) $100,000; $96,000 
D) $100,000; $100,000

Question 5

Futures markets have grown rapidly because futures contracts

Accepted Answer

A) are standardized. 
B) have lower default risk. 
C) are liquid. 
D) are all of the above. 
A) are standardized. 
B) have lower default risk. 
C) are liquid. 
D) are all of the above.

Question 6

A financial contract that obligates one party to exchange a set of payments it owns for another set of payments owned by another party is called a ________.

Accepted Answer

A) cross hedge 
B) cross call option 
C) cross put option 
D) swap 
A) cross hedge 
B) cross call option 
C) cross put option 
D) swap

Question 7

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

Accepted Answer

A) exercise price falls. 
B) volatility of the underlying asset falls. 
C) term to maturity decreases. 
D) futures price increases. 
A) exercise price falls. 
B) volatility of the underlying asset falls. 
C) term to maturity decreases. 
D) futures price increases.

Question 8

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

Accepted Answer

A) the call will be exercised. 
B) the put will be exercised. 
C) the call will not be exercised. 
D) the put will not be exercised. 
A) the call will be exercised. 
B) the put will be exercised. 
C) the call will not be exercised. 
D) the put will not be exercised.

Question 9

If a firm must pay for goods it has ordered with foreign currency, it can hedge its foreign exchange rate risk by

Accepted Answer

A) selling foreign exchange futures short. 
B) buying foreign exchange futures long. 
C) staying out of the exchange futures market. 
D) doing none of the above. 
A) selling foreign exchange futures short. 
B) buying foreign exchange futures long. 
C) staying out of the exchange futures market. 
D) doing none of the above.

Question 10

The main reason to buy an option on a futures contract rather than the futures contract itself is

Accepted Answer

A) to reduce transaction cost. 
B) to preserve the possibility for gains. 
C) to limit losses. 
D) to remove the possibility for gains. 
A) to reduce transaction cost. 
B) to preserve the possibility for gains. 
C) to limit losses. 
D) to remove the possibility for gains.

Question 11

By buying a long $100,000 futures contract for 115, you agree to pay ________ for ________ face value securities.

Accepted Answer

A) $100,000; $115,000 
B) $115,000; $100,000 
C) $86,956; $100,000 
D) $86,956; $115,000 
A) $100,000; $115,000 
B) $115,000; $100,000 
C) $86,956; $100,000 
D) $86,956; $115,000

Question 12

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

Accepted Answer

A) standardized contracts 
B) traded up until maturity 
C) not tied to one specific type of bond 
D) can be closed with offsetting trade 
A) standardized contracts 
B) traded up until maturity 
C) not tied to one specific type of bond 
D) can be closed with offsetting trade

Question 13

The purpose of the Commodity Futures Trading Commission is to do all of the following except

Accepted Answer

A) oversee futures trading. 
B) see that prices are not manipulated. 
C) approve proposed futures contracts. 
D) establish minimum prices for futures contracts. 
A) oversee futures trading. 
B) see that prices are not manipulated. 
C) approve proposed futures contracts. 
D) establish minimum prices for futures contracts.

Question 14

Distinguish between forward and futures contracts.

Accepted Answer

The answer of Distinguish between forward and futures contracts....

Question 15

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

Accepted Answer

A) standardized contracts 
B) traded up until maturity 
C) not tied to one specific type of bond 
D) marked to market daily 
A) standardized contracts 
B) traded up until maturity 
C) not tied to one specific type of bond 
D) marked to market daily

Question 16

Futures contracts are subject to default risk.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) exercise price increases. 
B) volatility of the underlying asset increases. 
C) term to maturity decreases. 
D) futures price increases. 
A) exercise price increases. 
B) volatility of the underlying asset increases. 
C) term to maturity decreases. 
D) futures price increases.

Question 19

The number of contracts outstanding in a particular financial future is the ________.

Accepted Answer

A) demand coefficient 
B) open interest 
C) index level 
D) outstanding balance 
A) demand coefficient 
B) open interest 
C) index level 
D) outstanding balance

Question 20

A forward contract is more flexible than a futures contract.

Accepted Answer

A) True 
 B)False

Exam 24: Hedging With Financial Derivatives

An option that gives the owner the right to sell a financial instrument at the exercise price within a specified period of time is a(n)________.

The seller of an option has the

Why have the futures markets grown so rapidly in recent years?

By selling short a futures contract of $100,000 at a price of 96, you are agreeing to deliver ________ face value securities for ________.

Futures markets have grown rapidly because futures contracts

A financial contract that obligates one party to exchange a set of payments it owns for another set of payments owned by another party is called a ________.

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

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

If a firm must pay for goods it has ordered with foreign currency, it can hedge its foreign exchange rate risk by

The main reason to buy an option on a futures contract rather than the futures contract itself is

By buying a long $100,000 futures contract for 115, you agree to pay ________ for ________ face value securities.

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

The purpose of the Commodity Futures Trading Commission is to do all of the following except

Distinguish between forward and futures contracts.

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

Futures contracts are subject to default risk.

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

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

The number of contracts outstanding in a particular financial future is the ________.

A forward contract is more flexible than a futures contract.

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Savings Associations and Credit Unions

Finance Companies

Filters

By selling short a futures contract of $100,000 at a price of 96, you are agreeing to deliver face value securities for .

By buying a long $100,000 futures contract for 115, you agree to pay for face value securities.