Question 1

The replication method identifies the price of a USD/GBP forward rate as a function of

Accepted Answer

A)  The expected future USD/GBP exchange rate, the GBP interest rates, and the USD interest rates 
B)  The spot USD/GBP exchange rate and the volatility of the spot USD/GBP exchange rate 
C)  The spot USD/GBP exchange rate, the GBP interest rates, and the USD interest rates 
D)  Only the spot USD/GBP exchange rate 
A)  The expected future USD/GBP exchange rate, the GBP interest rates, and the USD interest rates 
B)  The spot USD/GBP exchange rate and the volatility of the spot USD/GBP exchange rate 
C)  The spot USD/GBP exchange rate, the GBP interest rates, and the USD interest rates 
D)  Only the spot USD/GBP exchange rate

Question 2

The price of oil is $100 per barrel. Oil prices are expected to grow at 4% a year. The one-year risk-free rate of interest is 2% in simple terms. It costs $1 to store a barrel of oil for one year. If you observe a one-year forward price of oil of $98, what inference could you draw?

Accepted Answer

A)  The forward price is wrong and an arbitrage is possible. 
B)  There may be a benefit of carry in the oil market. 
C)  The market is in contango. 
D)  Demand for oil is expected to fall in a year. 
A)  The forward price is wrong and an arbitrage is possible. 
B)  There may be a benefit of carry in the oil market. 
C)  The market is in contango. 
D)  Demand for oil is expected to fall in a year.

Question 3

The price of oil is $100 per barrel. Oil prices are expected to grow at 4% a year. The one-year risk-free rate of interest is 2% in simple terms. It costs $1 to store a barrel of oil for one year. If oil has no costs or benefits of carry, what is the theoretical one-year forward price of oil?

Accepted Answer

A)  $100.00 
B)  $102.00 
C)  $103.02 
D)  $104.00 
A)  $100.00 
B)  $102.00 
C)  $103.02 
D)  $104.00

Question 4

The presence of the delivery option in a futures contract means that

Accepted Answer

A)  A futures contract may be physically settled but not a forward contract. 
B)  All else remaining the same, a futures contract will trade at a lower price than a forward. 
C)  All else remaining the same, a futures contract will trade at a higher price than a forward. 
D)  A futures contract mat be settled in cash or by delivery of the physical asset. 
A)  A futures contract may be physically settled but not a forward contract. 
B)  All else remaining the same, a futures contract will trade at a lower price than a forward. 
C)  All else remaining the same, a futures contract will trade at a higher price than a forward. 
D)  A futures contract mat be settled in cash or by delivery of the physical asset.

Question 5

An investor enters into a forward contract to buy 5,000 barrels of oil at $80 a barrel in three months. Two months later, suppose that the one-month forward price of oil is $83 a barrel, and the one-month interest rate is 0%. The value of the contract the investor holds after two months is

Accepted Answer

A)  $- \$ 15,000$ 
B)  + $15,000 
C)  +$400,000 
D)  +$415,000 
A)  $- \$ 15,000$ 
B)  + $15,000 
C)  +$400,000 
D)  +$415,000

The replication method identifies the price of a USD/GBP forward rate as a function of

The price of oil is $100 per barrel. Oil prices are expected to grow at 4% a year. The one-year risk-free rate of interest is 2% in simple terms. It costs $1 to store a barrel of oil for one year. If you observe a one-year forward price of oil of $98, what inference could you draw?

The price of oil is $100 per barrel. Oil prices are expected to grow at 4% a year. The one-year risk-free rate of interest is 2% in simple terms. It costs $1 to store a barrel of oil for one year. If oil has no costs or benefits of carry, what is the theoretical one-year forward price of oil?

The presence of the delivery option in a futures contract means that

An investor enters into a forward contract to buy 5,000 barrels of oil at $80 a barrel in three months. Two months later, suppose that the one-month forward price of oil is $83 a barrel, and the one-month interest rate is 0%. The value of the contract the investor holds after two months is

Overview

Futures Markets

Pricing Forwards Futures II

Hedging With Futures Forwards

Interest-Rate Forwards Futures

Options Markets

Options: Payoffs Trading Strategies

No-Arbitrage Restrictions

Early-Exercise Put-Call Parity

Option Pricing: an Introduction

Binomial Option Pricing

Implementing the Binomial Model

The Black-Scholes Model

Mathematics of Black-Scholes

Beyond Black-Scholes

The Option Greeks

Path-Independent Exotic Options

Exotic Options II: Path-Dependent Options

Value at Risk

Swaps and Floating Rate Products

Equity Swaps

Currency and Commodity Swaps

Term Structure of Interest Rates: Concepts

Estimating the Yield Curve

Modeling Term Structure Movements

Factor Models of the Term Structure

The Heath-Jarrow-Morton HJM and Libor Market Model LMM

Credit Derivative Products

Structural Models of Default Risk

Reduced-Form Models of Default Risk

Modeling Correlated Default

Filters

Exam 3: Pricing Forwards and Futures I

The replication method identifies the price of a USD/GBP forward rate as a function of

The price of oil is $100 per barrel. Oil prices are expected to grow at 4% a year. The one-year risk-free rate of interest is 2% in simple terms. It costs $1 to store a barrel of oil for one year. If you observe a one-year forward price of oil of $98, what inference could you draw?

The price of oil is $100 per barrel. Oil prices are expected to grow at 4% a year. The one-year risk-free rate of interest is 2% in simple terms. It costs $1 to store a barrel of oil for one year. If oil has no costs or benefits of carry, what is the theoretical one-year forward price of oil?

The presence of the delivery option in a futures contract means that

An investor enters into a forward contract to buy 5,000 barrels of oil at $80 a barrel in three months. Two months later, suppose that the one-month forward price of oil is $83 a barrel, and the one-month interest rate is 0%. The value of the contract the investor holds after two months is

Overview

Futures Markets

Pricing Forwards Futures II

Hedging With Futures Forwards

Interest-Rate Forwards Futures

Options Markets

Options: Payoffs Trading Strategies

No-Arbitrage Restrictions

Early-Exercise Put-Call Parity

Option Pricing: an Introduction

Binomial Option Pricing

Implementing the Binomial Model

The Black-Scholes Model

Mathematics of Black-Scholes

Beyond Black-Scholes

The Option Greeks

Path-Independent Exotic Options

Exotic Options II: Path-Dependent Options

Value at Risk

Swaps and Floating Rate Products

Equity Swaps

Currency and Commodity Swaps

Term Structure of Interest Rates: Concepts

Estimating the Yield Curve

Modeling Term Structure Movements

Factor Models of the Term Structure

The Heath-Jarrow-Morton HJM and Libor Market Model LMM

Credit Derivative Products

Structural Models of Default Risk

Reduced-Form Models of Default Risk

Modeling Correlated Default

Filters