Question 1

The main advantage of using options on futures contracts rather than the futures contracts themselves is that interest-rate risk is

Accepted Answer

A)  controlled while preserving the possibility of gains.
B)  controlled,while removing the possibility of losses.
C)  not controlled,but the possibility of gains is preserved.
D)  not controlled,but the possibility of gains is lost.E) A) and B)
F) C) and D)

Question 2

A contract that requires the investor to buy securities on a future date is called a

Accepted Answer

A)  short contract.
B)  long contract.
C)  hedge.
D)  cross.E) None of the above
F) A) and D)

Question 3

Futures differ from forwards because they are

Accepted Answer

A)  used to hedge portfolios.
B)  used to hedge individual securities.
C)  used in both financial and foreign exchange markets.
D)  a standardized contract.E) None of the above
F) A) and B)

Question 4

A call option gives the seller the

Accepted Answer

A)  right to sell the underlying security.
B)  obligation to sell the underlying security.
C)  right to buy the underlying security.
D)  obligation to buy the underlying security.E) None of the above
F) B) and C)

Question 5

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

Accepted Answer

A)  pay fixed rate while receiving floating rate.
B)  receive fixed rate while paying floating rate.
C)  both receive and pay fixed rate.
D)  both receive and pay floating rate.E) C) and D)
F) A) and D)

Question 6

The most common type of interest-rate swap is

Accepted Answer

A)  the plain vanilla swap.
B)  the basic swap.
C)  the ordinary swap.
D)  the notional swap.E) B) and C)
F) A) and D)

Question 7

To hedge the interest rate risk on $4 million of Treasury bonds with $100,000 futures contracts,you would need to purchase

Accepted Answer

A)  4 contracts.
B)  20 contracts.
C)  25 contracts.
D)  40 contracts.E) B) and D)
F) A) and C)

Question 8

When the financial institution is hedging interest-rate risk on its overall portfolio,then the hedge is a

Accepted Answer

A)  macro hedge.
B)  micro hedge.
C)  cross hedge.
D)  futures hedge.E) A) and B)
F) A) and C)

Question 9

If a firm is due to be paid in euros in two months,to hedge against exchange-rate risk the firm should ________ foreign exchange futures ________.

Accepted Answer

A)  sell;short
B)  buy;long
C)  sell;long
D)  buy;shortE) A) and D)
F) None of the above

Question 10

An option allowing the holder to buy an asset in the future is a

Accepted Answer

A)  put option.
B)  call option.
C)  swap.
D)  forward contract.E) None of the above
F) A) and B)

Exam 14: Financial Derivatives

When the financial institution is hedging interest-rate risk on its overall portfolio,then the hedge is a

Correct Answer
verified

A contract that requires the investor to buy securities on a future date is called a

Correct Answer
verified

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

Correct Answer
verified

Futures differ from forwards because they are

Correct Answer
verified

A call option gives the seller the

Correct Answer
verified

The main advantage of using options on futures contracts rather than the futures contracts themselves is that interest-rate risk is

Correct Answer
verified

If a firm is due to be paid in euros in two months,to hedge against exchange-rate risk the firm should foreign exchange futures .

Correct Answer
verified

To hedge the interest rate risk on $4 million of Treasury bonds with $100,000 futures contracts,you would need to purchase

Correct Answer
verified

The most common type of interest-rate swap is

Correct Answer
verified

An option allowing the holder to buy an asset in the future is a

Correct Answer
verified

Exam 14: Financial Derivatives

When the financial institution is hedging interest-rate risk on its overall portfolio,then the hedge is a

Correct AnswerverifiedShow Answer

A contract that requires the investor to buy securities on a future date is called a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Futures differ from forwards because they are

Correct AnswerverifiedShow Answer

A call option gives the seller the

Correct AnswerverifiedShow Answer

The main advantage of using options on futures contracts rather than the futures contracts themselves is that interest-rate risk is

Correct AnswerverifiedShow Answer

If a firm is due to be paid in euros in two months,to hedge against exchange-rate risk the firm should ________ foreign exchange futures ________.

Correct AnswerverifiedShow Answer

To hedge the interest rate risk on $4 million of Treasury bonds with $100,000 futures contracts,you would need to purchase

Correct AnswerverifiedShow Answer

The most common type of interest-rate swap is

Correct AnswerverifiedShow Answer

An option allowing the holder to buy an asset in the future is a

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If a firm is due to be paid in euros in two months,to hedge against exchange-rate risk the firm should foreign exchange futures .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified