Question 1

Which of the following is a characteristic of a swap seller?

Accepted Answer

A)  Prefers fixed-rate loans
B)  Generally has a lower credit rating
C)  Often has a positive duration gap
D)  Generally has a large holding of short-term assets
E)  All of the options are correct D

Question 2

The short hedge would usually be the correct choice if a bank is concerned about avoiding lower than expected yields from loans and security investments.

Accepted Answer

A) True 
 B)False  False

Question 3

A bank with a leverage-adjusted duration gap of 2 years and total assets of $100 million uses a futures contract whose underlying's duration is 5 years and has a price of $100,000 to hedge its exposure.The number of contracts needed is:

Accepted Answer

A)  2,000
B)  4,000
C)  8,000
D)  10,000
E)  20,000 B

Question 4

Julie Wells has found a Treasury Bond futures contract whose underlying's duration is 8.5 years and is currently selling for $97,500.Interest rates are currently 8% and are expected to rise by 1.5%.What is the expected change in the future contract's price for this change in interest rates?

Accepted Answer

A)  $1,462.50
B)  $12,431.25
C)  -$11,510.42
D)  -$1,462.50
E)  -$12,431.25

Question 5

Futures contracts are _________________________ daily,which means that futures contracts are settled each day as their market value changes.

Accepted Answer

The answer of Futures contracts are _________________________ daily,which means that...

Question 6

An option buyer can:

Accepted Answer

A)  exercise the option.
B)  sell the option to another buyer.
C)  allow the option to expire.
D)  All of the options are correct.
E)  exercise the option or must sell it to another buyer.

Question 7

A swap where the notional amount is constant is called:

Accepted Answer

A)  a quality swap
B)  a bullet swap
C)  an amortizing swap
D)  an accruing swap
E)  None of the options are correct

Question 8

The floating-rate payer in a swap would most likely want to buy an interest-rate:

Accepted Answer

A)  floor.
B)  cap.
C)  collar.
D)  deposit contract.
E)  futures contract.

Question 9

The amount of initial margin,the settlement price,and other rules regarding trading futures contracts are determined by the:

Accepted Answer

A)  SEC.
B)  floor brokers.
C)  dealers.
D)  open interest.
E)  clearinghouse.

Question 10

The financial futures markets are designed to shift the risk of interest rate fluctuations from risk-averse investors to speculators who are willing to accept and possibly profit from such risks.

Accepted Answer

A) True 
 B)False

Question 11

The combination of both a cap and floor is known as an interest-rate ________.

Accepted Answer

The answer of The combination of both a cap and...

Question 12

An interest rate collar:

Accepted Answer

A)  combines a rate floor and a rate cap into one agreement.
B)  ranges in maturity from a few days to a few weeks.
C)  protects a lender from rising interest rates.
D)  All of the options are correct.
E)  ranges in maturity from a few days to a few weeks and protects the lender from rising interest rates.

Question 13

A(n)_________________________ is the fee a buyer must pay to be able to put securities to,or to call securities away from the option writer.

Accepted Answer

The answer of A(n)_________________________ is the fee a buyer must...

Question 14

A bank that buys a call option:

Accepted Answer

A)  has the right to accept delivery of the underlying security at the contract price if they wish.
B)  has the right to make delivery of the underlying security at the contract price if they wish.
C)  is obligated to accept delivery of the underlying security at the contract price.
D)  is obligated to make delivery of the underlying security at the contract price.
E)  is exposed to unlimited losses and limited gains.

Question 15

What is the objective of a fair value hedge?

Accepted Answer

A)  To offset the losses due to changes in the value of an asset or liability
B)  To reduce the risk associated with future cash flows
C)  To predict future cash flows
D)  To predict the value of an asset or minimize the value of a liability
E)  None of the options are correct

Question 16

An interest-rate _______ would protect the swap party receiving a fixed-rate payment and making a floating-rate payment in a swap.

Accepted Answer

The answer of An interest-rate _______ would protect the swap...

Question 17

The daily settlement process that credits gains or deducts losses from a futures customer's account is called:

Accepted Answer

A)  factoring.
B)  marking-to-market.
C)  margining.
D)  maintenance.
E)  realizing.

Question 18

Which of the following tends to accurately predict the consensus opinion as to actions expected to be taken by the Federal Open Market Committee in the future?

Accepted Answer

A)  U.S.Treasury bond futures contract
B)  Eurodollar time deposit futures contract
C)  One month LIBOR futures contract
D)  Federal Funds futures contract
E)  All of the options are correct

Question 19

An advantage of interest rate swap is that:

Accepted Answer

A)  it can help protect from interest rate fluctuations.
B)  it can help achieve lower borrowing costs.
C)  it can help closely match the maturities of assets and liabilities.
D)  it can help transform actual cash flows to more closely match desired cash flow patterns.
E)  All of the options are correct

Question 20

Which of the following is a characteristic of a swap buyer?

Accepted Answer

A)  They generally have a lower credit rating
B)  They prefer fixed rate longer term loans
C)  They often have a positive duration gap
D)  They generally have substantial holdings of longer term assets
E)  All of the options are correct

Exam 14: Investment Banking,Insurance,and Other Sources of Fee Income