Question 1

Speculators are primarily interested in

Accepted Answer

A)  betting on anticipated changes in prices. 
B)  reducing their exposure to the risk of price fluctuations. 
C)  increasing market liquidity. 
D)  reducing the spread between bid and ask prices on bonds. 
A)  betting on anticipated changes in prices. 
B)  reducing their exposure to the risk of price fluctuations. 
C)  increasing market liquidity. 
D)  reducing the spread between bid and ask prices on bonds.

Question 2

Profits from speculation arise because of

Accepted Answer

A)  the spread between the bid and ask prices on bonds. 
B)  the illiquidity of markets for derivative instruments. 
C)  the high information costs in markets for derivative instruments. 
D)  disagreements among traders about future prices of a commodity or financial instrument. 
A)  the spread between the bid and ask prices on bonds. 
B)  the illiquidity of markets for derivative instruments. 
C)  the high information costs in markets for derivative instruments. 
D)  disagreements among traders about future prices of a commodity or financial instrument.

Question 3

Marking to market involves

Accepted Answer

A)  changing the futures price to the spot price each day. 
B)  engaging in arbitrage so as to reduce the risk involved with futures contracts. 
C)  crediting or debiting the margin account based on the net change in the value of the futures contract. 
D)  updating the futures price after the market closes each day. 
A)  changing the futures price to the spot price each day. 
B)  engaging in arbitrage so as to reduce the risk involved with futures contracts. 
C)  crediting or debiting the margin account based on the net change in the value of the futures contract. 
D)  updating the futures price after the market closes each day.

Question 4

Forward contracts are often illiquid because

Accepted Answer

A)  any capital gains on them are heavily taxed, making investors reluctant to sell them. 
B)  government regulation has not provided for a secondary market in them. 
C)  they generally contain terms specific to the particular buyer and seller. 
D)  the brokerage fees involved in buying and selling them are very high. 
A)  any capital gains on them are heavily taxed, making investors reluctant to sell them. 
B)  government regulation has not provided for a secondary market in them. 
C)  they generally contain terms specific to the particular buyer and seller. 
D)  the brokerage fees involved in buying and selling them are very high.

Question 5

In a put options contract,the

Accepted Answer

A)  seller has the obligation to receive the instrument at a specified time. 
B)  buyer has the obligation to deliver the instrument at a specified time. 
C)  buyer has the obligation to receive the instrument at a specified time. 
D)  seller has the obligation to deliver the instrument at a specified time. 
A)  seller has the obligation to receive the instrument at a specified time. 
B)  buyer has the obligation to deliver the instrument at a specified time. 
C)  buyer has the obligation to receive the instrument at a specified time. 
D)  seller has the obligation to deliver the instrument at a specified time.

Question 6

Which of the following statements about the presence of speculators in futures markets is correct?

Accepted Answer

A)  Their main objective is to reduce their exposure to risk. 
B)  They aid hedgers by increasing the liquidity in futures markets. 
C)  They make it difficult for hedgers to find someone to take the opposite side of their positions. 
D)  Once a futures market participant is known to be a speculator he or she is no longer allowed to participate in the market. 
A)  Their main objective is to reduce their exposure to risk. 
B)  They aid hedgers by increasing the liquidity in futures markets. 
C)  They make it difficult for hedgers to find someone to take the opposite side of their positions. 
D)  Once a futures market participant is known to be a speculator he or she is no longer allowed to participate in the market.

Question 7

Describe two useful purposes served by speculators in derivatives markets.

Accepted Answer

First,hedgers are able to transfer risk

Question 8

All of the following are steps involved in basic currency swaps EXCEPT

Accepted Answer

A)  counterparties exchange the net interest at the end of the swap. 
B)  the parties exchange principals in two currencies. 
C)  the parties exchange periodic interest payments over the life of the agreement. 
D)  the parties exchange the principal amount at the end of the agreement. 
A)  counterparties exchange the net interest at the end of the swap. 
B)  the parties exchange principals in two currencies. 
C)  the parties exchange periodic interest payments over the life of the agreement. 
D)  the parties exchange the principal amount at the end of the agreement.

Question 9

An options contract

Accepted Answer

A)  confers the rights to buy or sell an underlying asset at a predetermined price by a predetermined time. 
B)  is another name for a futures contract. 
C)  may be written for debt instruments, but not equities. 
D)  may be written for equities, but not for debt instruments. 
A)  confers the rights to buy or sell an underlying asset at a predetermined price by a predetermined time. 
B)  is another name for a futures contract. 
C)  may be written for debt instruments, but not equities. 
D)  may be written for equities, but not for debt instruments.

Question 10

The elimination of riskless profit opportunities is known as

Accepted Answer

A)  arbitrage. 
B)  options. 
C)  swaps. 
D)  liquidity. 
A)  arbitrage. 
B)  options. 
C)  swaps. 
D)  liquidity.

Question 11

On the day of delivery

Accepted Answer

A)  the spot price will equal the futures price. 
B)  the spot price will be greater than the futures price by an amount equal to the current interest rate times the futures price. 
C)  the futures price will be greater than the spot price by an amount equal to the current interest rate times the spot price. 
D)  there is no necessary relation between the spot price and the futures price. 
A)  the spot price will equal the futures price. 
B)  the spot price will be greater than the futures price by an amount equal to the current interest rate times the futures price. 
C)  the futures price will be greater than the spot price by an amount equal to the current interest rate times the spot price. 
D)  there is no necessary relation between the spot price and the futures price.

Question 12

Derivative instruments are

Accepted Answer

A)  assets such as bonds or common stock that derive their value from the value of the companies which issue them. 
B)  assets whose rates of returns must be derived from information published in financial tables. 
C)  assets which derive their value from underlying assets. 
D)  computers which display real-time financial information. 
A)  assets such as bonds or common stock that derive their value from the value of the companies which issue them. 
B)  assets whose rates of returns must be derived from information published in financial tables. 
C)  assets which derive their value from underlying assets. 
D)  computers which display real-time financial information.

Question 13

If you sell a futures contract for U.S.Treasury bills and on the delivery date the interest rate of T-bills is higher than you expected,you will have

Accepted Answer

A)  lost money on your long position. 
B)  gained money on your long position. 
C)  lost money on your short position. 
D)  gained money on your short position. 
A)  lost money on your long position. 
B)  gained money on your long position. 
C)  lost money on your short position. 
D)  gained money on your short position.

Question 14

The buyer of a futures contract

Accepted Answer

A)  assumes the short position. 
B)  assumes the long position. 
C)  may not sell the contract without the permission of the original seller. 
D)  has the obligation to deliver the underlying financial instrument at the specified future date. 
A)  assumes the short position. 
B)  assumes the long position. 
C)  may not sell the contract without the permission of the original seller. 
D)  has the obligation to deliver the underlying financial instrument at the specified future date.

Question 15

The price at which an option may be exercised is called the

Accepted Answer

A)  market price. 
B)  equilibrium price. 
C)  strike price. 
D)  fixed price. 
A)  market price. 
B)  equilibrium price. 
C)  strike price. 
D)  fixed price.

Question 16

All of the following describe the market for credit default swaps on mortgage-backed securities in the mid 2000s EXCEPT

Accepted Answer

A)  an increasing number of buyers were speculators. 
B)  AIG apparently underestimated the risk involved with mortgage-backed securities. 
C)  the volume of credit default swaps was too low making it difficult to assess their value. 
D)  payments by buyers were too low relative to risk. 
A)  an increasing number of buyers were speculators. 
B)  AIG apparently underestimated the risk involved with mortgage-backed securities. 
C)  the volume of credit default swaps was too low making it difficult to assess their value. 
D)  payments by buyers were too low relative to risk.

Question 17

In what ways do futures contracts differ from forward contracts?

Accepted Answer

Futures contracts are traded on exchange

Question 18

The intrinsic value of an option

Accepted Answer

A)  is equal to the option premium. 
B)  is the amount the option actually is worth if it is immediately exercised. 
C)  is the amount the option is expected to be worth on its expiration date. 
D)  is impossible to determine in the absence of information on the future prices of the underlying asset. 
A)  is equal to the option premium. 
B)  is the amount the option actually is worth if it is immediately exercised. 
C)  is the amount the option is expected to be worth on its expiration date. 
D)  is impossible to determine in the absence of information on the future prices of the underlying asset.

Question 19

A call option is said to be in the money" if

Accepted Answer

A)  it is written on a Treasury bill or other money-market asset. 
B)  it has increased in price since it was first written. 
C)  the price of the underlying asset is currently greater than the strike price. 
D)  the price of the underlying asset is currently greater than the strike price plus the option premium. 
A)  it is written on a Treasury bill or other money-market asset. 
B)  it has increased in price since it was first written. 
C)  the price of the underlying asset is currently greater than the strike price. 
D)  the price of the underlying asset is currently greater than the strike price plus the option premium.

Question 20

The futures price

Accepted Answer

A)  reflects traders' expectations of the spot price on the day of delivery. 
B)  is always above the spot price on the day of delivery. 
C)  is always below the spot price on the day of delivery. 
D)  is always equal to the spot price at every point in time. 
A)  reflects traders' expectations of the spot price on the day of delivery. 
B)  is always above the spot price on the day of delivery. 
C)  is always below the spot price on the day of delivery. 
D)  is always equal to the spot price at every point in time.

Speculators are primarily interested in

Profits from speculation arise because of

Marking to market involves

Forward contracts are often illiquid because

In a put options contract,the

Which of the following statements about the presence of speculators in futures markets is correct?

Describe two useful purposes served by speculators in derivatives markets.

All of the following are steps involved in basic currency swaps EXCEPT

An options contract

The elimination of riskless profit opportunities is known as

On the day of delivery

Derivative instruments are

If you sell a futures contract for U.S.Treasury bills and on the delivery date the interest rate of T-bills is higher than you expected,you will have

The buyer of a futures contract

The price at which an option may be exercised is called the

All of the following describe the market for credit default swaps on mortgage-backed securities in the mid 2000s EXCEPT

In what ways do futures contracts differ from forward contracts?

The intrinsic value of an option

A call option is said to be in the money" if

The futures price

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 7: Derivatives and Derivative Markets

Speculators are primarily interested in

Profits from speculation arise because of

Marking to market involves

Forward contracts are often illiquid because

In a put options contract,the

Which of the following statements about the presence of speculators in futures markets is correct?

Describe two useful purposes served by speculators in derivatives markets.

All of the following are steps involved in basic currency swaps EXCEPT

An options contract

The elimination of riskless profit opportunities is known as

On the day of delivery

Derivative instruments are

If you sell a futures contract for U.S.Treasury bills and on the delivery date the interest rate of T-bills is higher than you expected,you will have

The buyer of a futures contract

The price at which an option may be exercised is called the

All of the following describe the market for credit default swaps on mortgage-backed securities in the mid 2000s EXCEPT

In what ways do futures contracts differ from forward contracts?

The intrinsic value of an option

A call option is said to be in the money" if

The futures price

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters