Académique Documents
Professionnel Documents
Culture Documents
(
F .1&
No divide!ds are e1*eted.
Use this i!formatio! to a!s"er 6uestio!s 1 throu-h $.
1. 0hat value does the :lak2Sholes model *redit for the all4
a. &.+&
#. 1.1%
. /.3+
d. ).&%
e. !o!e of the a#ove
(. Su**ose .ou feel that the all is over*ried. 0hat strate-. should .ou use to e1*loit the a**are!t
misvaluatio!4
a. #u. 3'1 shares8 sell 18%%% alls
#. #u. 3%& shares8 sell 18%%% alls
. sell short 3'1 shares8 #u. 18%%% alls
d. sell short 3%& shares8 #u. 18%%% alls
e. !o!e of the a#ove
+. The *rie of a *ut o! the stok is
a. %.$&
#. $.)/
. (.+&
d. /.$$
e. !o!e of the a#ove
/. To o!strut a riskless hed-e8 the !um#er of *uts *er 1%% shares *urhased is
a. .3&$%
#. .(/(%
. 2.(/$%
d. 2.))($
e. !o!e of the a#ove
&. The allEs ve-a is
a. 2+.%(
#. .%/)
1-10
Co*.ri-ht 7 (%%1 #. Harourt8 I!
. 2.3'(
d. /.)3
e. !o!e of the a#ove
). If the atual all *rie is +.3'8 the im*lied sta!dard deviatio! is
a. .(&
#. -reater tha! .(&
. less tha! .(&
d. i!fi!ite
e. !o!e of the a#ove
3. If "e !o" assume that the stok *a.s a divide!d at a k!o"! o!sta!t rate of +.& *ere!t8 "hat stok *rie
should "e use i! the model4
a. ((.)%
#. 1'.)&
. (+
d. (1.''
e. !o!e of the a#ove
$. If "e !o" assume that the stok *a.s a si!-le divide!d of (.(& i! three mo!ths8 "hat stok *rie should
"e use i! the model4
a. 13.3&
#. (%.3&
. (%
d. (%.$%
e. !o!e of the a#ove
'. If the sim*le retur! o! a Treasur. #ill is $.& *ere!t8 the risk2free rate i! the :lak2Sholes model is
a. $.33 *ere!t
#. $.'+ *ere!t
. $.&& *ere!t
d. $.(% *ere!t
e. !o!e of the a#ove
1%. 0hih of the follo"i!- varia#les i! the :lak2Sholes o*tio! *rii!- model is the most diffiult to o#tai!4
a. the volatilit.
#. the risk2free rate
. the stok *rie
d. the time to e1*iratio!
e. the e1erise *rie
11. The #i!omial *rie "ill theoretiall. e6ual the :lak2Sholes *rie u!der "hih of the follo"i!-
o!ditio!s4
a. "he! the !um#er of time *eriods is lar-e
#. "he! the o*tio! is at2the2mo!e.
. "he! the o*tio! is i!2the2mo!e.
d. "he! the o*tio! is out2of2the2mo!e.
e. !o!e of the a#ove
1(. If the stok *rie is //8 the e1erise *rie is /%8 the *ut *rie is 1.&/8 a!d the :lak2Sholes *rie usi!- .($
as the volatilit. is 1.118 the im*lied volatilit. "ill #e
a. hi-her tha! .($
#. lo"er tha! .($
. .($
d. lo"er tha! the risk2free rate
e. !o!e of the a#ove
1+. 0hih of the follo"i!- stateme!ts a#out the :lak2Sholes model is !ot true4
a. dereasi!- the volatilit. lo"ers the all *rie
#. the e1*eted stok *rie *la.s a role i! the model
. the risk2free rate is o!ti!uousl. om*ou!ded
d. the model is o!siste!t "ith *ut2all *arit.
e. !o!e of the a#ove
1/. 0hih of the follo"i!- harateristis of the :lak2Sholes model is !ot orret4
a. it is a disrete time model
1-11
Co*.ri-ht 7 (%%1 #. Harourt8 I!
#. it is the limit of the #i!omial model
. it is a o!ti!uous time model
d. it -ives the *rie of a Euro*ea! o*tio!
e. !o!e of the a#ove
1&. 0hih of the follo"i!- assum*tio!s of the :lak2Sholes model is !ot orret4
a. the stok volatilit. is o!sta!t
#. the stok retur! follo"s a !ormal distri#utio!
. there are !o tra!satio! osts
d. there are !o ta1es
e. !o!e of the a#ove
1). 0hih of the follo"i!- stateme!ts a#out the delta is !ot true4
a. it ra!-es from 5ero to o!e
#. it o!ver-es to 5ero or o!e at e1*iratio!
. it is -ive! #. NHd1I i! the :lak2Sholes model
d. it ha!-es slo"l. !ear e1*iratio! if the o*tio! is at2the2mo!e.
e. !o!e of the a#ove
13. 0hih of the follo"i!- JKreeksL is !ot a measure of the o*tio!Cs se!sitivit. to a ha!-e i! o!e of its i!*ut
values4
a. delta
#. -amma
. rho
d. theta
e. si-ma
1$. 0hih of the follo"i!- stateme!ts is true a#out the relatio!shi* #et"ee! the o*tio! *rie a!d the risk2free
rate4
a. a all *rie is !earl. li!ear "ith res*et to the risk2free rate
#. a all *rie is hi-hl. se!sitive to the risk2free rate
. the risk2free rate affets a all #ut !ot a *ut
d. the risk2free rate does !ot affet a all *rie
e. !o!e of the a#ove
1'. The relatio!shi* #et"ee! the volatilit. a!d the time to e1*iratio! is alled the
a. volatilit. smile
#. volatilit. ske"
. term struture of volatilit.
d. theta
e. !o!e of the a#ove
(%. 0hat is the reaso! for e1euti!- a -amma hed-e4
a. the volatilit. a! ha!-e
#. the stok *rie a! make a lar-e move
. the stok *rie moves are too small for a delta hed-e to "ork
d. there is !o true risk2free rate
e. !o!e of the a#ove
(1. 0hih of the follo"i!- stateme!ts a#out the volatilit. is !ot true4
a. the im*lied volatilit. ofte! differs aross o*tio!s "ith differe!t e1erise *ries
#. the im*lied volatilit. e6uals the historial volatilit. if the o*tio! is orretl. *ried
. the im*lied volatilit. is determi!ed #. trial a!d error
d. the im*lied volatilit. is !earl. li!earl. related to the o*tio! *rie
e. !o!e of the a#ove
((. The relatio!shi* #et"ee! the o*tio! *rie a!d the e1erise *rie is alled
a. the -amma
#. the ve-a
. the ome-a
d. the 5eta
e. !o!e of the a#ove
(+. 0hat ha**e!s "he! the volatilit. is 5ero i! the :lak2Sholes model4
1-12
Co*.ri-ht 7 (%%1 #. Harourt8 I!
a. the o*tio! *rie o!ver-es to either 5ero or the lo"er #ou!d
#. the o*tio! *rie o!ver-es to the i!tri!si value
. the o*tio! automatiall. e1*ires out of the mo!e.
d. the -amma a!d delta o!ver-e
e. !o!e of the a#ove
(/. 0hih of the follo"i!- is !ot orret a#out a allCs -amma4
a. it is the same as a *utCs -amma
#. it is lar-e "he! the all is at2the2mo!e.
. it a! #e vie"ed as a measure of the risk of the delta
d. it is a soure of risk that a! #e hed-ed o!l. #. usi!- a!other o*tio!
e. !o!e of the a#ove
(&. 0hih of the follo"i!- stateme!ts is i!orret a#out the historial volatilit.4
a. if used i! the :lak2Sholes model8 it -ives the urre!t market *rie
#. it is #ased o! the volatilit. of the lo- retur! o! the stok
. it re6uires a sam*le of ree!t retur!s
d. it should #e o!verted to a! a!!uali5ed volatilit.
e. !o!e of the a#ove
CHAPTER 6: BASIC OPTION STRATEGIES
Co!sider a stok *ried at ;+% "ith a sta!dard deviatio! of .+. The risk2free rate is .%&. There are *ut a!d all
o*tio!s availa#le at e1erise *ries of +% a!d a time to e1*iratio! of si1 mo!ths. The alls are *ried at ;(.$' a!d the
*uts ost ;(.1&. There are !o divide!ds o! the stok a!d the o*tio!s are Euro*ea!. ,ssume that all tra!satio!s
o!sist of 1%% shares or o!e o!trat H1%% o*tio!sI. Use this i!formatio! to a!s"er 6uestio!s 1 throu-h 1%.
1. 0hat is .our *rofit if .ou #u. a all8 hold it to e1*iratio! a!d the stok *rie at e1*iratio! is ;+34
a. ;3%%
#. 2;($'
. ;(8311
d. ;/11
e. !o!e of the a#ove
(. 0hat is the #reakeve! stok *rie at e1*iratio! o! the tra!satio! desri#ed i! *ro#lem 14
a. ;+(.$'
#. ;+%.%%
. ;(3.11
d. ;+(.1&
e. there is !o #reakeve!
+. 0hat is the ma1imum *rofit o! the tra!satio! desri#ed i! *ro#lem 14
a. ;(8311
#. i!fi!it.
. 5ero
d. ;+8($'
e. ;+8%%%
/. 0hat is the ma1imum *rofit that the "riter of a all a! make4
a. ;(8311
#. ;($'
. ;+8%%%
d. ;+8($'
e. !o!e of the a#ove
&. Su**ose the #u.er of the all i! *ro#lem 1 sold the all t"o mo!ths #efore e1*iratio! "he! the stok *rie
"as ;++. Ho" muh *rofit "ould the #u.er make4
a. ;+(.$'
1-13
Co*.ri-ht 7 (%%1 #. Harourt8 I!
#. ;+%.11
. ;3$.%%
d. ;11.%%
f. !o!e of the a#ove
). Su**ose the i!vestor o!struted a overed all. ,t e1*iratio! the stok *rie is ;(3. 0hat is the i!vestorEs
*rofit4
a. ;&$'
#. ;($'
. ;(8'$'
d. ;(8311
e. !o!e of the a#ove
3. 0hat is the #reakeve! stok *rie at e1*iratio! for the tra!satio! desri#ed i! *ro#lem )4
a. ;(3.11
#. ;+%.%%
. ;+(.$'
d ;('.$'
e. !o!e of the a#ove
$. If the tra!satio! desri#ed i! *ro#lem ) is losed out "he! the o*tio! has three mo!ths to -o a!d the stok
*rie is at ;+)8 "hat is the i!vestorEs *rofit4
a. ;)%%
#. ;+11
. ;$$'
d. ;(('
e. !o!e of the a#ove
'. 0hat is the ma1imum *rofit from the tra!satio! desri#ed i! Questio! ) if the *ositio! is held to
e1*iratio!4
a. ;+8($'
#. ;($'
. i!fi!it.
d. ;(8311
e. !o!e of the a#ove
1%. 0hat is the mi!imum *rofit from the tra!satio! desri#ed i! Questio! ) if the *ositio! is held to
e1*iratio!4
a. 2;(8311
#. 2;+8($'
. 2;+8%%%
d. !e-ative i!fi!it.
e. !o!e of the a#ove
11. Co!sider t"o *ut o*tio!s differi!- o!l. #. e1erise *rie. The o!e "ith the hi-her e1erise *rie has
a. the lo"er #reakeve! a!d lo"er *rofit *ote!tial
#. the lo"er #reakeve! a!d -reater *rofit *ote!tial
. the hi-her #reakeve! a!d -reater *rofit *ote!tial
d. the hi-her #reakeve! a!d lo"er *rofit *ote!tial
e. the -reater *remium a!d lo"er *rofit *ote!tial
1(. 0hih of the follo"i!- stateme!ts is true a#out losi!- a lo!- all *ositio! *rior to e1*iratio! relative to
holdi!- it to e1*iratio!4
a. the *rofit is -reater at all stok *ries
#. the *rofit is -reater o!l. at lo" stok *ries
. the *rofit is -reater o!l. at hi-h stok *ries
d. the ra!-e of *ossi#le *rofits is -reater
e. !o!e of the a#ove are true
1+. 0hih of the follo"i!- tra!satio!s does !ot *rofit i! a stro!- #ull market.
1-14
Co*.ri-ht 7 (%%1 #. Harourt8 I!
a. a short *ut
#. a overed all
. a *rotetive *ut
d. a s.!theti all
e. !o!e of the a#ove
1/. 0hih of the follo"i!- is e6uivale!t to a s.!theti all4
a. a lo!- stok a!d a short *ut *ositio!
#. a lo!- *ut a!d a lo!- stok *ositio!
. a lo!- *ut a!d a short risk2free #o!d *ositio!
d. a lo!- stok a!d a short risk2free #o!d *ositio!
e. !o!e of the a#ove
1&. Earl. e1erise im*oses a risk to all #ut o!e of the follo"i!- tra!satio!s.
a. a short all
#. a short *ut
. a *rotetive *ut
d. a! u!overed all
e. !o!e of the a#ove
1). Eah of the follo"i!- is a #ullish strate-. except
a. a lo!- all
#. a short *ut
. a short stok
d. a *rotetive *ut
e. !o!e of the a#ove
13. 0hih of the follo"i!- strate-ies has the -reatest *ote!tial loss4
a. a! u!overed all
#. a lo!- *ut
. a overed all
d. a lo!- *ositio! i! the stok
e. it is im*ossi#le to tell
1$. 0hih of the follo"i!- strate-ies has esse!tiall. the same *rofit dia-ram as a overed all4
a. a lo!- *ut
#. a short *ut
. a *rotetive *ut
d. a lo!- all
e. !o!e of the a#ove
1'. 0hih of the follo"i!- stateme!ts is true a#out the *urhase of a *rotetive *ut at a hi-her e1erise *rie
relative to a lo"er e1erise *rie4
a. the #reakeve! is lo"er
#. the ma1imum loss is -reater
. the i!sura!e is less ostl.
d. the i!sura!e is more ostl.
e. !o!e of the a#ove
(%. 0hat is the disadva!ta-e of a strate-. of rolli!- over a overed all to avoid e1erise4
a. the all *remium is esse!tiall. thro"! a"a.
#. tra!satio! osts te!d to #e hi-h
. the stok "ill i!ur losses
d. the all is more e1*e!sive "he! rolled over
e. !o!e of the a#ove
(1. 0hih of the follo"i!- is the #reakeve! for a *rotetive *ut4
a. = M S% 2 P
#. P M S%
. = 2 ST
d. = > S% 2 P
1-15
Co*.ri-ht 7 (%%1 #. Harourt8 I!
e. !o!e of the a#ove
((. 0hih of the follo"i!- stateme!ts a#out a overed all "riti!- strate-. is true4
a. the losses are limited
#. retur! a!d risk are -reater tha! that of sim*l. holdi!- the stok
. it is a hea*er form of i!sura!e tha! a *rotetive *ut
d. it -e!erall. makes a lar-e !um#er of small *rofits
e. !o!e of the a#ove
(+. The differe!e i! *rofit from a! atual *ut a!d a s.!theti *ut is
a. =
#. ST 2 =
. = 2 ST
d. ST M =H1 M rI
2T
e. !o!e of the a#ove
(/. , overed all "riter "ho *refers eve! less risk should
a. -et rid of the all
#. s"ith to a all "ith a lo"er e1erise *rie
. -et rid of the stok
d. s"ith to a all "ith a hi-her e1erise *rie
e. !o!e of the a#ove
(&. 0hih of the follo"i!- i!vestors ma. #e o#li-ated to #u. stok4
a. overed all "riter
#. all #u.er
. *ut "riter
d. *rotetive *ut #u.er
e. !o!e of the a#ove
CHAPTER 7: ADVANCED OPTION STRATEGIES
The follo"i!- *ries are availa#le for all a!d *ut o*tio!s o! a stok *ried at ;&%. The risk2free rate is ) *ere!t
a!d the volatilit. is .+&. The Marh o*tio!s have '% da.s remai!i!- a!d the ?u!e o*tio!s have 1$% da.s
remai!i!-. The :lak2Sholes model "as used to o#tai! the *ries.
Calls Puts
Strike Marh ?u!e Marh ?u!e
/& ).$/ $./1 1.1$ (.%'
&% +.$( &.&$ +.%$ /.1+
&& 1.$' +.&/ ).%$ ).'+
Use this i!formatio! to a!s"er 6uestio!s 1 throu-h (%. ,ssume that eah tra!satio! o!sists of o!e o!trat H1%%
o*tio!sI u!less other"ise i!diated.
<or 6uestio!s 1 throu-h )8 o!sider a #ull mo!e. s*read usi!- the Marh /&9&% alls.
1. Ho" muh "ill the s*read ost4
a. ;'$)
1-16
Co*.ri-ht 7 (%%1 #. Harourt8 I!
#. ;+%(
. ;($+
d. ;1'+
e. !o!e of the a#ove
(. 0hat is the ma1imum *rofit o! the s*read4
a. ;&%%
#. ;$%(
. ;1'$
d. ;+%(
e. !o!e of the a#ove
+. 0hat is the ma1imum loss o! the s*read4
a. ;&%%
#. ;)'$
. ;1'$
d. ;$%(
e. !o!e of the a#ove
/. 0hat is the *rofit if the stok *rie at e1*iratio! is ;/34
a. 2;1%(
#. ;+'$
. 2;+%(
d. ;&%%
e. !o!e of the a#ove
&. 0hat is the #reakeve! *oi!t4
a. ;/$.%(
#. ;/1.'$
. ;&&.))
d. ;&%.%%
e. !o!e of the a#ove
). Su**ose .ou losed the s*read )% da.s later. 0hat "ill #e the *rofit if the stok *rie is still at ;&%4
a. ;/1
#. ;1'$
. ;+%(
d. ;1%(
e. !o!e of the a#ove
<or 6uestio!s 3 a!d $8 su**ose a! i!vestor e1*ets the stok *rie to remai! at a#out ;&% a!d deides to e1eute a
#utterfl. s*read usi!- the ?u!e alls.
3. 0hat "ill #e the ost of the #utterfl. s*read4
a. ;181'&
#. ;)+3
. ;3'
d. ;18%/&
e. !o!e of the a#ove
$. 0hat "ill #e the *rofit if the stok *rie at e1*iratio! is ;&(.&%4
a. ;131
#. ;18/(1
. ;1.%+3
d. ;/(1
e. !o!e of the a#ove
'. Su**ose .ou "ish to o!strut a ratio s*read usi!- the Marh a!d ?u!e &% alls. Aou "a!t to #u. 1%%
?u!e &% all o!trats. Ho" ma!. Marh &% alls "ould .ou sell4
a. 1%&
#. '&
. 1%%
d. &3
e. !o!e of the a#ove
1-17
Co*.ri-ht 7 (%%1 #. Harourt8 I!
,!s"er 6uestio!s 1% a!d 11 a#out a ale!dar s*read #ased o! the assum*tio! that stok *ries are e1*eted to
remai! fairl. o!sta!t. Use the ?u!e9Marh &% all s*read. ,ssume o!e o!trat of eah.
1%. 0hat "ill the s*read ost4
a. 2;13)
#. ;13)
. ;&&$
d. ;1%&
e. !o!e of the a#ove
11. 0hat "ill #e the *rofit if the s*read is held '% da.s a!d the stok *rie is ;/&4
a. ;+)
#. ;(%
. ;&&$
d. 2;(%
e. !o!e of the a#ove
,!s"er 6uestio!s 1( throu-h 13 a#out a lo!- straddle o!struted usi!- the ?u!e &% o*tio!s.
1(. 0hat "ill the straddle ost4
a. ;1/&
#. ;)'%
. ;'31
d. ;/1+
e. !o!e of the a#ove
1+. 0hat are the t"o #reakeve! stok *ries at e1*iratio!4
a. ;&&.&$ a!d ;/&.$3
#. ;&/.1+ a!d ;/&.$3
. ;&&.&$ a!d ;//./(
d. ;&'.31 a!d ;/%.('
e. !o!e of the a#ove
1/. 0hat is the *rofit if the stok *rie at e1*iratio! is at ;)/.3&4
a. 2;'31
#. ;18/3&
. 2;+8&(&
d. ;&%%
e. !o!e of the a#ove
1&. 0hat is the *rofit if the *ositio! is held for '% da.s a!d the stok *rie is ;&&4
a. 2;'31
#. 2;&$
. 2;1%'
d. 2;/31
e. !o!e of the a#ove
1). Su**ose the i!vestor adds a all to the lo!- straddle8 thus reati!- a stra*. 0hat "ill this do to the
#reakeve! stok *ries4
a. lo"er #oth the u*side a!d do"!side #reakeve!s
#. raise #oth the u*side a!d do"!side #reakeve!s
. raise the u*side a!d lo"er the do"!side #reakeve!s
d. lo"er the u*side a!d raise the do"!side #reakeve!s
e. !o!e of the a#ove
13. @etermi!e the *rofit at e1*iratio! o! a stri* if the stok *rie at e1*iratio! is ;+).
a. 2;1('
#. ;18/1)
. ;/('
d. ;18+$/
e. !o!e of the a#ove
,!s"er 6uestio!s 1$ throu-h (% a#out a lo!- #o1 s*read usi!- the ?u!e &% a!d && o*tio!s.
1$. 0hat is the ost of the #o1 s*read4
a. ;&%%
#. ;(8%1$
1-18
Co*.ri-ht 7 (%%1 #. Harourt8 I!
. ;3)
d. ;/$/
e. !o!e of the a#ove
1'. 0hat is the *rofit if the stok *rie at e1*iratio! is ;&(.&%4
a. ;1)
#. ;&%%
. 2;(+/
d. ;(&%
e. !o!e of the a#ove
(%. 0hat is the !et *rese!t value of the #o1 s*read4
a. ;'.$/
#. ;&.%%
. ;1).%%
d. ;1.$/
e. !o!e of the a#ove
(1. 0hih of the follo"i!- strate-ies does !ot *rofit i! a risi!- market4
a. *ut #ull s*read
#. lo!- straddle
. ollar
d. all #ull s*read
e. !o!e of the a#ove
((. 0hih of the follo"i!- tra!satio!s a! have a! u!limited loss4
a. lo!- straddle
#. ale!dar s*read
. #utterfl. s*read
d. reverse #o1 s*read
e. !o!e of the a#ove
(+. 0hih of the follo"i!- is the #est strate-. for a! e1*eted fall i! the market4
a. lo!- stri*
#. *ut #ull s*read
. ale!dar s*read
d. #utterfl. s*read
e. !o!e of the a#ove
(/. Earl. e1erise is a disadva!ta-e i! "hih of the follo"i!- tra!satio!s4
a. short #o1 s*read
#. *ut #ear s*read
. lo!- stri*
d. lo!- stra*
e. !o!e of the a#ove
(&. 0hih of the follo"i!- have similar *rofit -ra*hs4
a. all #ull s*read a!d lo!- #o1 s*read
#. *ut #ear s*read a!d short #o1 s*read
. #utterfl. s*read a!d ratio s*read
d. ale!dar s*read a!d all #ear s*read
e. !o!e of the a#ove
CHAPTER 8: THE STRUCTURE OF FORWARD AND FUTURES MARKETS
1. 0hih of the follo"i!- is !ot a futures e1ha!-e4
a. Mi!!ea*olis Krai! E1ha!-e
#. :osto! Commodit. E1ha!-e
. Coffee8 Su-ar a!d Cooa E1ha!-e
d. Na!sas Cit. :oard of Trade
e. Mid,meria Commodit. E1ha!-e
1-19
Co*.ri-ht 7 (%%1 #. Harourt8 I!
(. 0hih of the follo"i!- o!trat terms is !ot set #. the futures e1ha!-e4
a. the dates o! "hih deliver. a! our
#. the e1*iratio! mo!ths
. the delivera#le ommodities
d. the si5e of the o!trat
e. the *rie
+. 0hih of the follo"i!- or-a!i5atio!s has the ultimate re-ulator. authorit. i! the futures i!dustr.4
a. Natio!al <utures ,ssoiatio!
#. Commodit. <utures Tradi!- Commissio!
. Commodit. E1ha!-e ,uthorit.
d. Seurities a!d E1ha!-e Commissio!
e. !o!e of the a#ove
/. Mar-i! i! a futures tra!satio! differs from mar-i! i! a stok tra!satio! #eause
a. stok tra!satio!s are muh smaller
#. deliver. ours immediatel. i! a stok tra!satio!
. !o mo!e. is #orro"ed i! a futures tra!satio!
d. futures are muh more volatile
e. !o!e of the a#ove
&. If the i!itial mar-i! is ;&8%%%8 the mai!te!a!e mar-i! is ;+8&%% a!d .our #ala!e is ;/8%%%8 ho" muh
must .ou de*osit4
a. ;)8%%%
#. ;18&%%
. ;'8%%%
d. !othi!-
e. !o!e of the a#ove
). If the i!itial mar-i! is ;&8%%%8 the mai!te!a!e mar-i! is ;+8&%% a!d .our #ala!e is ;+81%%8 ho" muh
must .ou de*osit4
a. ;18&%%
#. ;/%%
. ;18'%%
d. %
e. !o!e of the a#ove
3. The !um#er of futures o!trats outsta!di!- is alled the
a. re*orta#le *ositio!
#. mi!imum volume
. o*e! i!terest
d. s*read *ositio!
e. !o!e of the a#ove
$. Most futures o!trats are losed #.
a. deliver.
#. offset
. e1erise
d. default
e. !o!e of the a#ove
'. Most for"ard o!trats are losed #.
a. deliver.
#. offset
. e1erise
d. default
e. !o!e of the a#ove
1%. 0hih of the follo"i!- is !ot a for"ard o!trat4
a. a lo!-2term em*lo.me!t o!trat at a fi1ed salar.
#. a! automo#ile lease !o!2a!ela#le for three .ears
. a rai! hek
d. a si-!ed o!trat to #u. a house i! si1 mo!ths
e. !o!e of the a#ove
1-20
Co*.ri-ht 7 (%%1 #. Harourt8 I!
11. 0here did the U.S. futures market ori-i!ate4
a. Chia-o
#. Na!sas
. Ne" Aork
d. Mi!!ea*olis
e. !o!e of the a#ove
1(. 0hih of the follo"i!- is a trader o! the floor of the futures e1ha!-e4
a. i!trodui!- #roker
#. ommissio! #roker
. ommodit. tradi!- advisor
d. ommodit. *ool o*erator
e. !o!e of the a#ove
1+. Oariatio! mar-i! is "hih of the follo"i!-4
a. the differe!e i! mar-i! #et"ee! hed-er a!d s*eulator
#. mar-i! differe!es aordi!- to tradi!- st.le
. mar-i! de*osited as a result of marki!-2to2market
d. mar-i! set #. the varia#ilit. of a futures *rie
e. !o!e of the a#ove
1/. 0hih of the follo"i!- is the most ativel. traded U.S. futures o!trat4
a. SBP &%% I!de1
#. rude oil
. Treasur. #o!ds
d. 0heat
f. !o!e of the a#ove
1&. 0hih of the follo"i!- duties is !ot *erformed #. the leari!-house4
a. holdi!- mar-i! de*osits
#. -uara!teei!- *erforma!e of #u.er a!d "riter
. mai!tai!i!- reords of tra!satio!s
d. le!di!- mo!e. to meet mar-i! re6uireme!ts
e. !o!e of the a#ove
1). 0hat are iruit #reakers4
a. rules that sto* tradi!- "he! futures are a#out to e1*ire
#. a s.stem that shuts do"! the e1ha!-e om*uter duri!- *eriods of a#!ormal volume
. limits o! the !um#er of o!trats that a! #e traded o! hi-h volume da.s
d. rules that limit the !um#er of o!trats a s*eulator a! hold
e. !o!e of the a#ove
13. ,! after2hours om*uteri5ed tradi!- s.stem at the CME is alled
a. COME=
#. KLO:E=(
. LI<<E
d. C<TC
e. !o!e of the a#ove
1$. 0hih of the follo"i!- is !ot a method of termi!ati!- a futures o!trat4
a. offset
#. deliver.
. e1ha!-e for *h.sials
d. sal*i!-
e. !o!e of the a#ove
1'. Tradi!- as #oth a #roker a!d a dealer is alled
a. dual tradi!-
#. s*readi!-
. sal*i!-
1-21
Co*.ri-ht 7 (%%1 #. Harourt8 I!
d. ar#itra-i!-
e. !o!e of the a#ove
(%. The tradi!- *roedure o! the floor of the futures e1ha!-e is referred to as
a. a-ai!st atuals
#. o*e! i!terest
. o*e! outr.
d. i!de1 *artii*atio!
e. !o!e of the a#ove
(1. , futures o!trat overs &%%% *ou!ds "ith a mi!imum *rie ha!-e of ;%.%1 is sold for ;+1.)% *er
*ou!d. If the i!itial mar-i! is ;(8&(& a!d the mai!te!a!e mar-i! is ;18%%%8 at "hat *rie "ould there #e
a mar-i! all4
a. +1.'1
#. +(.11
. +1.('
d. +1.%'
e. +1.$%
((. O!e of the adva!ta-es of for"ard markets is
a. *erforma!e is -uara!teed #. the K2+%
#. tradi!- is o!duted i! the eve!i!- over om*uters
. the o!trats are *rivate a!d ustomi5ed
d. tradi!- is less ostl. a!d -over!ed #. more rules
-. !o!e of the a#ove
(+. 0hih is the most ative -rou* of futures4
a. e!er-.
#. a-riulture
. urre!.
d. fi!a!ials
e. !o!e of the a#ove
(/. 0hih e1ha!-e is the lar-est futures e1ha!-e i! the "orld4
a. Chia-o :oard of Trade
#. EUPE=
. Chia-o Mera!tile E1ha!-e
d. Tok.o Commodit. E1ha!-e
e. !o!e of the a#ove
(&. 0hih of the follo"i!- is !ot a t.*e of futures trader4
a. sal*ers
#. ar#itra-eurs
. *rofit2takers
d. hed-ers
e. da. traders
CHAPTER : PRINCIPLES OF FORWARD AND FUTURES PRICING
1. , market "ith o!ta!-o a!d #ak"ardatio! is said to #e
a. at less tha! full arr.
#. i!effiie!t
. offeri!- a risk *remium
d. #iased
e. !o!e of the a#ove
(. 0hih of the follo"i!- #est desri#es !ormal o!ta!-o4
a. the s*ot *rie is less tha! the futures *rie
#. the futures *rie is less tha! the s*ot *rie
. the e1*eted s*ot *rie is less tha! the futures *rie
d. the ost of arr. is !e-ative
1-22
Co*.ri-ht 7 (%%1 #. Harourt8 I!
e. !o!e of the a#ove
+. 0hih of the follo"i!- a! e1*lai! a o!ta!-o4
a. the i!terest rate e1eeds the divide!d .ield
#. the ost of arr. is !e-ative
. futures *ries e1eed for"ard *ries
d. the market is at less tha! full arr.
e. !o!e of the a#ove
/. U!der "hih of the follo"i!- situatio!s "ill futures *ries !ot e6ual for"ard *ries
a. "he! futures *ries a!d i!terest rates are u!orrelated
#. "he! i!terest rates do !ot ha!-e
. o!e da. *rior to e1*iratio!
d. at e1*iratio!
e. !o!e of the a#ove
&. Su**ose .ou #u. a o!e2.ear for"ard o!trat at ;)&. ,t e1*iratio!8 the s*ot *rie is ;3+. The risk2free
rate is 1% *ere!t. 0hat is the value of the o!trat at e1*iratio!4
a. ;$.%%
#. 2;$.%%
. ;%.%%
d. ;3.(3
e. !o!e of the a#ove
). Su**ose .ou sell a three2mo!th for"ard o!trat at ;+&. O!e mo!th later8 !e" for"ard o!trats are
selli!- for ;+%. The risk2free rate is 1% *ere!t. 0hat is the value of .our o!trat4
a. ;/.')
#. ;&.%%
. ;/.'(
d. ;/.&&
e. !o!e of the a#ove
3. Su**ose .ou #u. a futures o!trat at ;1&%. If the futures *rie ha!-es to ;1/38 "hat is its value a!
i!sta!t #efore it is marked2to2market4
a. %
#. ;+
. 2;+
d. it is im*ossi#le to tell
e. !o!e of the a#ove
$. 0hih o!e of the follo"i!- o!ditio!s is suffiie!t for futures *ries to e1eed for"ard *ries4
a. it is o!e da. *rior to e1*iratio!
#. for"ard rates e6ual future s*ot rates
. i!terest rates are o!sta!t
d. futures *ries are *ositivel. orrelated "ith i!terest rates
e. !o!e of the a#ove
'. If futures *ries are #elo" s*ot *ries8 "e sa. that
a. s*ot *ries are e1*eted to fall
#. there is #ak"ardatio!
. there is a risk *remium *aid #. lo!- hed-ers
d. the market is at full arr.
e. !o!e of the a#ove
1%. , market i! "hih the futures *rie e1eeds the s*ot *rie is
a. a o!ta!-o
#. a #ak"ardatio!
. a! ar#itra-e o**ortu!it.
d. risk2free
e. !o!e of the a#ove
1-23
Co*.ri-ht 7 (%%1 #. Harourt8 I!
11. <utures *ries differ from s*ot *ries #. "hih o!e of the follo"i!- fators4
a. the s.stemati risk
#. the ost of arr.
. the s*read
d. the risk *remium
e. !o!e of the a#ove
1(. , o!ve!ie!e .ield is
a. a retur! ear!ed for deliveri!- a -ood o! time
#. the ost of arr. mi!us the risk2free rate
. a retur! ear!ed for holdi!- a -ood i! short su**l.
d. the .ield o! a! asset that is eas. to a6uire
e. !o!e of the a#ove
1+. , o!ta!-o market is o!siste!t "ith
a. a !e-ative #asis
#. futures *ries e1eedi!- s*ot *ries
. a *ositive ost of arr.
d. all of the a#ove
e. !o!e of the a#ove
1/. 0hih of the follo"i!- situatio!s "ould #e most o!siste!t "ith !o risk *remium4
a. there is !o hed-i!-
#. there is a !e-ative ost of arr.
. futures are mis*ried
d. all of the a#ove
e. !o!e of the a#ove
1&. Su**ose there is a risk *remium of ;%.&%. The s*ot *rie is ;(% a!d the futures *rie is ;((. 0hat is the
e1*eted s*ot *rie at e1*iratio!4
a. ;(1.&%
#. ;((.&%
. ;(%.&%
d. ;(/.&%
e. !o!e of the a#ove
1). If hed-ers are *redomi!a!tl. short the ommodit.8 "hat a! "e sa. a#out the risk *remium4
a. it "ould #e *ositive
#. it "ould e1eed the ost of arr.
. it "ould #e !e-ative
d. it "ould #e 5ero
e. !o!e of the a#ove
13. 0hat "ould #e the s*ot *rie if a stok i!de1 futures *rie "ere ;3&8 the risk2free rate "ere 1% *ere!t8
the divide!d .ield + *ere!t8 a!d the futures e1*ires i! three mo!ths4
a. ;3+.3%
#. ;33./$
. ;3(.)%
d. ;3).+(
e. !o!e of the a#ove
1$. If i!terest rates "ere o!sta!t a!d .ou #ou-ht o!e t"o2da. for"ard o!trat8 ho" ma!. futures o!trats
should .ou sell to e1eute a risk2free hed-e4 r is the o!e2da. i!terest rate.
a. %
#. 1 M r
. 1
d. 19H1 M rI
e. !o!e of the a#ove
1-24
Co*.ri-ht 7 (%%1 #. Harourt8 I!
1'. Su**ose it is urre!tl. ?ul.. The Se*tem#er futures *rie is ;)% a!d the @eem#er futures *rie is ;)$.
0hat does the s*read of ;$ re*rese!t4
a. the ost of arr. from ?ul. to Se*tem#er
#. the e1*eted risk *remium from ?ul. to Se*tem#er
. the ost of arr. from Se*tem#er to @eem#er
d. the e1*eted risk *remium from Se*tem#er to @eem#er
e. !o!e of the a#ove
(%. 0h. is the i!itial value of a futures o!trat 5ero4
a. the futures is immediatel. marked2to2market
#. .ou do !ot *a. a!.thi!- for it
. the #asis "ill o!ver-e to 5ero
d. the e1*eted *rofit is 5ero
e. !o!e of the a#ove
(1. The s*ot *rie *lus the ost of arr. e6uals
a. the o!ve!ie!e .ield
#. the e1*eted future s*ot *rie
. the risk *remium
d. the futures *rie
e. !o!e of the a#ove
((. Pisk *remiums are likel. to e1ist i! "hat ki!d of market4
a. o!e "ith !o hed-ers
#. o!e "ith o!l. s*eulators
. o!e "ith ma!. hed-ers
d. o!e "ith o!ta!-o
e. !o!e of the a#ove
(+. If the three>.ear s*ot rate is 1/ *ere!t a!d the o!e>.ear s*ot rate is 1( *ere!t8 "hat is the for"ard rate
for t"o>.ear loa!s i! o!e .ear4
a. +(.($ *ere!t
#. 1&.%1 *ere!t
. (.(' *ere!t
d. 1+ *ere!t
e. !o!e of the a#ove
(/. If the 1$%>da. s*ot of '.&Q a!d a '%>da. futures e1*iri!- i! 1$% da.s im*lies a .ield of 1%.$Q8 "hat is
the estimated rate o! a (3%>da. s*ot tra!satio!4
a. &.+( *ere!t
#. '.'+ *ere!t
. 1%.% *ere!t
d. 3.() *ere!t
e. !o!e of the a#ove
(&. The ost of arr. o!sists of all the follo"i!- e1e*t
a. the risk>free rate
#. the ost of stora-e
. i!sura!e o! the asset
d. the risk *remium
e. !o!e of the a#ove
CHAPTER 1!: FUTURES HEDGING STRATEGIES
1. , short hed-e is o!e i! "hih
a. the mar-i! re6uireme!t is "aived
#. the hed-er is short futures
. the hed-er is short i! the s*ot market
d. the futures *rie is lo"er tha! the s*ot *rie
e. !o!e of the a#ove
(. ,! a!tii*ator. hed-e is o!e i! "hih
a. the #asis is e1*eted to fall
#. the hed-er e1*ets to make a *rofit o! the futures
1-25
Co*.ri-ht 7 (%%1 #. Harourt8 I!
. the s*ot *ositio! "ill #e take! i! the future
d. all of the a#ove
e. !o!e of the a#ove
+. , stre!-the!i!- of the #asis mea!s
a. the s*ot *rie rises more tha! the futures *rie
#. the futures *rie falls more tha! the s*ot *rie
. a short hed-er #e!efits
d. all of the a#ove
e. !o!e of the a#ove
/. , hed-e i! "hih the asset u!derl.i!- the futures is !ot the asset #ei!- hed-ed is
a. a ross hed-e
#. a! o*timal hed-e
. a #asis hed-e
d. a mi!imum varia!e hed-e
e. !o!e of the a#ove
&. 0he! the futures e1*ires #efore the hed-e is termi!ated a!d the hed-er moves i!to the !e1t futures
e1*iratio!8 it is alled
a. s*readi!- the hed-e
#. rolli!- the hed-e for"ard
. o*timall. "ei-hti!- the hed-e
d. all of the a#ove
e. !o!e of the a#ove
). The duratio! of the futures o!trat used i! the *rie se!sitivit. hed-e ratio is
a. the duratio! of the s*ot #o!d #ei!- hed-ed usi!- the futures *rie i!stead of the s*ot *rie
#. the duratio! of the delivera#le #o!d usi!- the s*ot *rie
. the duratio! of the delivera#le #o!d usi!- the futures *rie
d. the duratio! of the overall #o!d *ortfolio
f. !o!e of the a#ove
3. 0hih teh!i6ue a! #e used to om*ute the mi!imum varia!e hed-e ratio4
a. duratio! a!al.sis
#. *rese!t value
. re-ressio!
d. all of the a#ove
e. !o!e of the a#ove
$. 0hih of the follo"i!- measures is used i! the *rie se!sitivit. hed-e ratio for #o!d futures4
a. #eta
#. duratio!
. orrelatio!
d. varia!e
e. !o!e of the a#ove
'. Su**ose .ou #u. a! asset at ;&% a!d sell a futures o!trat at ;&+. 0hat is .our *rofit at e1*iratio! if the
asset *rie -oes to ;/'4 HI-!ore arr.i!- ostsI
a. 2;1
#. 2;/
. ;+
d. ;/
e. !o!e of the a#ove
1%. Su**ose .ou #u. a! asset at ;3% a!d sell a futures o!trat at ;3(. 0hat is .our *rofit if8 *rior to
e1*iratio!8 .ou sell the asset at ;3& a!d the futures *rie is ;3$4
a. 2;1
#. ;(
. ;1
1-26
Co*.ri-ht 7 (%%1 #. Harourt8 I!
d. 2;)
e. !o!e of the a#ove
11. 0hih of the follo"i!- is !ot a reaso! for firms to hed-e4
a. <irms a! hed-e less e1*e!sivel. tha! a! their shareholders
#. Shareholders a!!ot tolerate mark2to2market losses
. Hed-i!- #. or*oratio!s a! have ta1 adva!ta-es
d. Shareholders are !ot al"a.s a"are of their firmsE risks
e. !o!e of the a#ove
1(. @etermi!e the effetive a!!ual #orro"i!- ost of ;18%%%8%%% '%2da. ommerial *a*er if the *a*er -oes
out at a disou!t of 1% *ere!t a!d the hed-e *rodues a loss of ;+8&%%.
a. 1% *ere!t
#. (.(% *ere!t
. '.(1 *ere!t
d. 1(.// *ere!t
e. !o!e of the a#ove
1-27
Co*.ri-ht 7 (%%1 #. Harourt8 I!
1+. @etermi!e the o*timal hed-e ratio for Treasur. #o!ds "orth ;18%%%8%%% "ith a duratio! of 1(./&8 .ieldi!-
11.' *ere!t if the futures has a *rie of ;'%8%%%8 a duratio! of $.& .ears a!d a! im*lied .ield of '.&
*ere!t.
a. 1&.'+
#. 1).)+
. 3./(
d. 11.11
e. !o!e of the a#ove
1/. 0hat is the *rofit o! a hed-e if #o!ds are *urhased at ;1&%8%%%8 t"o futures o!trats are sold at ;3(8&%%
eah8 the! the #o!ds are sold at ;1/38&%% a!d the futures are re*urhased at ;3/8%%% eah4
a. 2;(8&%%
#. 2;&8&%%
. 2;&%%
d. 2;+8%%%
e. !o!e of the a#ove
1&. <i!d the o*timal stok i!de1 futures hed-e ratio if the *ortfolio is "orth ;(8/%%8%%%8 the #eta is 1.1& a!d
the SBP &%% futures *rie is /&%.3% "ith a multi*lier of &%%.
a. 1%.)&
#. 1(.(&
. )1(+.$%
d. &+(&.%& e. !o!e of the a#ove
1). I! "hih of the follo"i!- situatio!s "ould .ou use a short hed-e4
a. the *la!!ed *urhase of a stok
#. the *la!!ed *urhase of ommerial *a*er
. the *la!!ed issua!e of #o!ds
d. the *la!!ed re*urhase of stok to over a short *ositio!
e. !o!e of the a#ove
13. O! the #asis of li6uidit.8 the #est futures o!trat for hed-i!- short2term i!terest rates is
a. Treasur. #ills
#. the *rime rate
. ommerial *a*er
d. Eurodollars
e. !o!e of the a#ove
1$. If a firm is *la!!i!- to #orro" mo!e. i! the s*ot market8 the rate it is tr.i!- to lok i! is
a. the urre!t for"ard rate
#. the urre!t s*ot rate
. the differe!e #et"ee! the s*ot rate a!d the for"ard rate
d. the for"ard rate at the termi!atio! of the hed-e
e. !o!e of the a#ove
1'. 0hat reaso! mi-ht #e -ive! for !ot "a!ti!- to hed-e the future issua!e of a lia#ilit. if i!terest rates are
u!usuall. hi-h4
a. the mar-i! ost "ill #e e1*e!sive
#. .ou are loki!- i! a hi-h rate
. tra!satio! osts are hi-her
d. futures *ries are lo"er
e. !o!e of the a#ove
(%. Thou-h a ross hed-e has some"hat hi-her risk tha! a! ordi!ar. hed-e8 it "ill redue risk if "hih of the
follo"i!- ours4
a. futures *ries are more volatile tha! s*ot *ries
#. the s*ot a!d futures o!trats are orretl. *ried at the o!set
. s*ot a!d futures *ries are *ositivel. orrelated
d. futures *ries are less volatile tha! s*ot *ries
e. !o!e of the a#ove
1-28
Co*.ri-ht 7 (%%1 #. Harourt8 I!
(1. 0hih of the follo"i!- orretl. e1*resses the *rofit o! a hed-e4
a. the #asis "he! the hed-e is losed
#. the ha!-e i! the #asis
. the s*ot *rofit mi!us the futures *rofit
d. the futures *rofit mi!us the s*ot *rofit
e. !o!e of the a#ove
((. 0hat ha**e!s to the #asis throu-h the o!tratEs life4
a. it i!itiall. dereases8 the! i!reases
#. it i!itiall. i!reases8 the! dereases
. it remai!s relativel. stead.
d. it moves to"ard 5ero
e. !o!e of the a#ove
(+. Pedui!- the hed-e ratio to reflet the effets of the dail. settleme!t is alled
a. mi!imum varia!e hed-i!-
#. ross hed-i!-
. s*read hed-i!-
d. taili!- the hed-e
e. !o!e of the a#ove
(/. Qua!tit. risk is
a. !ot k!o"i!- ho" ma!. futures o!trats to use
#. the u!ertai!t. a#out the si5e of the s*ot *ositio!
. the u!ertai!t. i! estimati!- the hed-e ratio
d. the diffiult. i! 6ua!tif.i!- hed-i!- risk
e. !o!e of the a#ove
(&. The relatio!shi* #et"ee! the s*ot .ield a!d the .ield im*lied #. the futures *rie is alled
a. the .ield #eta
#. the *rie se!sitivit.
. the tail
d. the hed-e ratio
e !o!e of the a#ove
CHAPTER 11: ADVANCED FUTURES STRATEGIES
1. The tra!satio! desi-!ed to e1*loit mis*rii!- i! the relatio!shi* #et"ee! futures a!d s*ot *ries is alled
a. a re*urhase a-reeme!t
#. a hed-e
. s*eulatio!
d. ash a!d arr.
e. !o!e of the a#ove
(. The im*lied re*o rate is similar to the
a. i!ter!al rate of retur!
#. ost of hed-i!-
. .ield o! the futures o!trat
d. all of the a#ove
e. !o!e of the a#ove
+. <i!d the a!!uali5ed im*lied re*o rate if .ou #u. a '12da. T2#ill at '$ a!d sell a futures o!trat o! it at
''.&. HNoteR these *ries alread. reflet the disou!t o! a +)%2da. #asis.I
a. ).%' *ere!t
#. 1.&+ *ere!t
. ).($ *ere!t
d. (.%+ *ere!t
e. +.%) *ere!t
/. 0hih o!e of the follo"i!- o*tio!s is !ot assoiated "ith the Treasur. #o!d futures o!trat4
a. e!d2of2the2mo!th
1-29
Co*.ri-ht 7 (%%1 #. Harourt8 I!
#. s*read o*tio!
. "ild ard o*tio!
d. 6ualit. o*tio!
e. !o!e of the a#ove
&. The tra!satio! i! "hih a Treasur. #o!d futures s*read is om#i!ed "ith a Treasur. #ill futures
tra!satio! is alled a
a. :o!d2#ill s*read
#. MO: s*read
. desi-!ated order tur!arou!d
d. turtle trade
e. !o!e of the a#ove
). The o**ortu!it. to lok i! the i!voie *rie a!d *urhase the delivera#le Treasur. #o!d later is alled
a. #o!d i!sura!e
#. *ro-ram tradi!-
. the "ild ard
d. deliver. ar#itra-e
e !o!e of the a#ove
3. If the futures *rie at +R%% *.m. is 1((8 the s*ot *rie is 1/(.& a!d the C< is 1.1&3&8 #. ho" muh must
the s*ot *rie fall #. &R%% *.m. to Dustif. deliver.4
a. 1.($&
#. 1.11%(
. (%.&%
d. 13.31
e. /(.'/
$. Ho" is the ost of a deliver. o*tio! *aid4
a. the lo!- *a.s the short "ith a ash settleme!t
#. the short *a.s the lo!- "ith a ash settleme!t
. a hi-her losi!- futures *rie
d. a lo"er losi!- futures *rie
e. !o!e of the a#ove
'. <i!d the a!!uali5ed im*lied re*o rate o! a T2#o!d ar#itra-e if the s*ot *rie is 11(.(&8 the arued i!terest
is 1.+&8 the futures *rie is 11/.3&8 the C< is 1.%1(&8 the arued i!terest at deliver. is %.'&8 a!d the
holdi!- *eriod is three mo!ths.
a. 1.$& *ere!t
#. %.33 *ere!t
. 1/.33 *ere!t
d. 1+.%/ *ere!t
e. (.(+ *ere!t
1%. <i!d the *rofit if the i!vestor #u.s a ?ul. futures at 3&8 sells a! Oto#er futures at 3$ a!d the! reverses the
?ul. futures at 3( a!d the Oto#er futures at 33.
a. 2+
#. 2(
. (
d. 1
e. !o!e of the a#ove
11. @etermi!e the a!!uali5ed im*lied re*o rate o! a Treasur. #o!d s*read i! "hih the Marh is #ou-ht at
'$.3 a!d the ?u!e is sold at ''.&. The Marh C< is 1.((& a!d the ?u!e C< is 1.(/. The arued i!terest as
of Marh 1 is %.3& a!d the arued i!terest as of ?u!e 1 is 1.((.
a. &.(1 *ere!t
#. 1%.%+ *ere!t
. 1.($ *ere!t
d. (./( *ere!t
e. %.$1 *ere!t
1(. @etermi!e the amou!t #. "hih a stok i!de1 futures is mis*ried if the stok i!de1 is at (%%8 the futures
is at (%(.&8 the risk2free rate is )./& *ere!t8 the divide!d .ield is (.3& *ere!t8 a!d the o!trat e1*ires i!
three mo!ths.
a. u!der*ried #. %.)/
1-30
Co*.ri-ht 7 (%%1 #. Harourt8 I!
#. over*ried #. (.&
. over*ried #. '.3)
d. over*ried #. %.)/
e. u!der*ried #. (.&
1+. 0hih of the follo"i!- is !ot a risk of *ro-ram tradi!-4
a. the stoks a!!ot #e simulta!eousl. sold at e1*iratio!
#. fratio!al o!trats a!!ot #e *urhased or sold
. the divide!ds are !ot ertai!
d. the stoks a!!ot #e *urhased simulta!eousl.
e. !o!e of the a#ove
1/. Aou hold a stok *ortfolio "orth ;+% millio! "ith a #eta of 1.%&. Aou "ould like to lo"er the #eta to .'%
usi!- SBP &%% futures8 "hih have a *rie of /)%.(% a!d a multi*lier of &%%. 0hat tra!satio! should
.ou do4 Pou!d off to the !earest "hole o!trat.
a. sell 1+% o!trats
#. sell '833$ o!trats
. sell (% o!trats
d. #u. &%8%%% o!trats
e. sell &%8%%% o!trats
1&. If the stok i!de1 is at 1/$8 the three2mo!th futures *rie is 1&18 the divide!d .ield is & *ere!t a!d the
i!terest rate is $ *ere!t8 determi!e the *rofit from a! i!de1 ar#itra-e if the stok e!ds u* at 1// at
e1*iratio!. HI-!ore tra!satio! osts.I
a. 1.$'
#. /.%%
. 3.%%
d. &.11
e. 23.%%
1). The tra!satio! i! "hih mo!e. is #orro"ed #. selli!- a seurit. a!d *romisi!- to #u. it #ak i! several
"eeks is alled a
a. term re*o
#. over!i-ht re*o
. term ar#itra-e
d. MO: s*read
e. !o!e of the a#ove
13. The e!d2of2the2mo!th o*tio! is
a. the ri-ht to e1erise a! o*tio! o! the last da. of the mo!th
#. a! o*tio! e1*iri!- o! the last da. of the mo!th
. the ri-ht to deliver duri!- the last seve! #usi!ess da.s of the mo!th
d. a! o*tio! that trades o!l. at the e!d of the mo!th
e. !o!e of the a#ove
1$. Aou hold a #o!d *ortfolio "orth ;1% millio! "ith a .ield of 1%.(& *ere!t a!d a duratio! of $.&. 0hat
futures tra!satio! "ould .ou do to raise the duratio! to 1% if the futures *rie is ;'+8%%%8 its duratio! is
'.(& a!d its im*lied .ield is 1%.%& *ere!t4 Pou!d u* to the !earest "hole o!trat.
a. #u. 1%' o!trats
#. #u. 1$ o!trats
. #u. ))' o!trats
d. sell 1%% o!trats
e sell ))' o!trats
1'. <i!d the orret s*ot *rie if a '12da. T2#ill futures sells at '$.(8 the im*lied re*o rate is ).) *ere!t
Ha!!uali5ed to a +)&2da. .earI a!d the T2#ill has 1+& da.s to -o.
a. '3./&
#. ').)&
. '&.'1
d. '(.1(
1-31
Co*.ri-ht 7 (%%1 #. Harourt8 I!
e. ''.&&
(%. If .ou #u. #oth a +%2da. Eurodollar C@ *a.i!- ).3 *ere!t a!d a '%2da. futures o! a '%2da. Eurodollar
C@ "ith a *rie im*l.i!- a .ield of 3.( *ere!t8 "hat is .our total a!!uali5ed retur!4 H:oth .ields are
#ased o! +)%2da. .ears.I
a. 3.(& *ere!t
#. 3.%3 *ere!t
. 1%.1& *ere!t
d. 3.3& *ere!t
e. ).'& *ere!t
(1. , delivera#le Treasur. #o!d has arued i!terest of +./( *er ;1%%8 a ou*o! of '.& *ere!t8 a *rie of 1+&
a!d a o!versio! fator of 1.1'&. The futures *rie is 11(.(&. 0hat is the i!voie amou!t4
a. 1+3.&)
#. 1/+.)/
. 1)1.++
d. 1+/.1/
e. !o!e of the a#ove
((. @etermi!e the o!versio! fator for deliver. of the 3 19/Cs off Ma. 1&8 (%1) o! the Marh (%%% T>#o!d
futures o!trat.
a. 1.((&
#. %.'+(
. 1.%$+
d. 1.1(3
e. 1.&%'
(+. 0hih of the follo"i!- is !ot !eeded "he! alulati!- the im*lied re*o rate for stok i!de1 futures4
a. futures *rie
#. o!versio! fator
. time>to>e1*iratio!
d. s*ot *rie
e. !o!e of the a#ove
(/. The urre!t *rie of a stok i!de1 is 11&8 a!d the three>mo!th futures *rie is 113. The Euro*ea! all o!
the i!de18 e1*iri!- i! three mo!ths8 has a strike *rie of 1(% a!d a value of +.+%. If the risk>free rate is
&Q8 "hat is the value of the three>mo!th 1(% Euro*ea! *ut4
a. (.')
#. /.'/
. ).()
d. $.(/
e. !o!e of the a#ove
(&. 0hih of the follo"i!- is a form of *ro-ram tradi!-4
a. i!de1 ar#itra-e
#. "ild ard ar#itra-e
. tria!-ular ar#itra-e
d. timi!- ar#itra-e
e. !o!e of the a#ove
CHAPTER 12: OPTIONS ON FUTURES
1. O*tio!s o! futures have #ee! tradi!- si!e
a. 1'3+
#. 1'$(
. 1'))
d. 1'+)
e. !o!e of the a#ove
1-32
Co*.ri-ht 7 (%%1 #. Harourt8 I!
(. 0hat is the lo"er #ou!d of a Euro*ea! all o! a futures "here f% is the futures *rie a!d = is the e1erise
*rie4
a. the differe!e #et"ee! f% a!d =
#. 5ero
. the *rese!t value of the differe!e #et"ee! f% a!d =
d. the ratio of f% to =
e. !o!e of the a#ove
+. 0hih of the follo"i!- o*tio!s o! futures "ill !ot #e e1erised earl.4
a. a Euro*ea! *ut o! a futures
#. a! ,meria! all o! a futures
. a! ,meria! *ut o! a futures
d. all of the a#ove
e. !o!e of the a#ove
/. @etermi!e the a**ro*riate *rie of a Euro*ea! *ut o! a futures if the all is "orth ;).&&8 the risk2free rate is
&.) *ere!t8 the futures *rie is ;$%8 the e1erise *rie is ;3&8 a!d the e1*iratio! is i! three mo!ths.
a. ;1(.&)
#. ;%.&/
. ;11./$
d. ;1.)(
e. !o!e of the a#ove
&. <i!d the *rie of a Euro*ea! all o! a futures if the futures *rie is ;1%)8 the e1erise *rie is ;1%%8 the
o!ti!uousl. om*ou!ded risk2free rate is 3.( *ere!t8 the volatilit. is ./1 a!d the all e1*ires i! si1 mo!ths.
a. ;1/.&3
#. ;13.%/
. ;).%%
d. ;1'.3$
e. !o!e of the a#ove
). <i!d the *rofit o! a overed all o*tio! o! futures if the futures is *urhased at ;1&&8 the all is sold at ;).3&8
the e1erise *rie is ;1&%8 a!d the futures *rie at e1*iratio! is ;1&(. ,ssume a multi*lier of &%% for eah
futures a!d all.
a. ;18%%%
#. 2;(8&%%
. ;$3&
d. !ot e!ou-h i!formatio! to determi!e
e. !o!e of the a#ove
3. 0hih of the follo"i!- is not a! adva!ta-e of o*tio!s o! futures over futures4
a. the o*tio! is easier to *rie tha! the futures
#. the o*tio! trades side2#.2side "ith the futures
. the futures are more li6uid tha! the s*ot
d. there is less likelihood of a shorta-e at deliver.
e. !o!e of the a#ove
$. 0hat does a! i!vestor a6uire "he! e1erisi!- a *ut o*tio! o! a futures4
a. the e1erise *rie mi!us the *ut *rie
#. ash from the sale of the futures o!trat
. a short futures o!trat
d. all of the a#ove
e. !o!e of the a#ove
'. The :lak o*tio! o! futures *rii!- model is e6uivale!t to the :lak2Sholes model u!der "hih of the
follo"i!- o!ditio!s4
a. the o*tio! a!d futures e1*ire simulta!eousl.
#. the futures is *ried #. the ost of arr.
. the o*tio! o! futures is Euro*ea!
d. all of the a#ove
e. !o!e of the a#ove
1%. , dee* i!2the2mo!e. all o*tio! o! futures is e1erised earl. #eause
a. the i!tri!si value is ma1imi5ed
1-33
Co*.ri-ht 7 (%%1 #. Harourt8 I!
#. it #ehaves like a futures #ut ties u* fu!ds
. the futures *rie is !ot likel. to rise a!. further
d. all of the a#ove
e. !o!e of the a#ove
11. <i!d the value of a Euro*ea! *ut o*tio! o! futures if the futures *rie is 3(8 the e1erise *rie is 3%8 the
o!ti!uousl. om*ou!ded risk2free rate is $.& *ere!t8 the volatilit. is .+$ a!d the time to e1*iratio! is three
mo!ths.
a. ).+%
#. 1(.'%
. /.+/
d. (.%%
e. !o!e of the a#ove
1(. 0hat is the lo"er #ou!d of a Euro*ea! *ut o*tio! o! futures "here f% is the futures *rie a!d = is the
e1erise *rie4
a. f% 2 =
#. the *rese!t value of the differe!e #et"ee! = a!d f%
. = 2 f%
d. 5ero
e. !o!e of the a#ove
1+. If a Euro*ea! *ut o*tio! o! futures is over*ried relative to the all8 a risk2free strate-. "ould #e to
a. sell the *ut8 #u. the all8 sell the futures
#. sell the *ut8 #u. the all8 #u. the futures
. sell the *ut8 #u. the all8 #u. risk2free #o!ds
d. sell the *ut8 #u. the all8 #u. the s*ot asset
e. !o!e of the a#ove
1/. <i!d the *rofit o! a *ut o*tio! o! futures if the futures is ori-i!all. at '&8 the e1erise *rie is 1%%8 the *ut
*rie is 3.& a!d the futures is at '$ at e1*iratio!.
a. 23.&
#. 2/.&
. /.&
d. 2(.&
e. !o!e of the a#ove
1&. The lar-est volume of o*tio!s o! futures is o! the
a. Chia-o :oard of Trade
#. Chia-o :oard O*tio!s E1ha!-e
. Ne" Aork <utures E1ha!-e
d. Chia-o Mera!tile E1ha!-e
e. !o!e of the a#ove
1). <i!d the *rie of a Euro*ea! all o*tio! o! a futures if the *ut o*tio! is *ried at /./&8 the futures is at
11&.)&8 the e1erise *rie is 11&8 the time to e1*iratio! is )& da.s a!d the disrete risk2free i!terest rate is
$.3& *ere!t.
a. 11%.&&
#. /./&
. +.$1
d. &.%'
e. !o!e of the a#ove
13. <i!d the *rie of a! ,meria! all o*tio! o! a futures if the urre!t s*ot *rie is +%8 the e1erise *rie is (&8
the futures *rie is ++.3%8 the risk2free i!terest rate is ) *ere!t8 the s*ot asset a! -o u* #. 1% *ere!t or
do"! #. $ *ere!t *er *eriod a!d the all e1*ires i! t"o *eriods8 "hih is also "he! the futures e1*ires.
a. '.'$
#. $.3%
. 3.3+
d. $.((
e. !o!e of the a#ove
1$. The delta of a all o*tio! o! a futures is e6ual to the delta of a all o*tio! o! the s*ot times
a. the *rese!t value fator for the risk2free rate a!d time to e1*iratio!
1-34
Co*.ri-ht 7 (%%1 #. Harourt8 I!
#. o!e
. the futures *rie
d. the e1erise *rie
e. !o!e of the a#ove
CHAPTER 14: INTEREST RATE DERIVATIVES
1. , firm #orro"s ;(% millio! from its #a!k a!d a-rees to make *a.me!ts ever. '% da.s at the #e-i!!i!- of
the *eriod at LI:OP8 "hih is urre!tl. 1%.& *ere!t. It arra!-es a! i!terest rate s"a*8 a-reei!- to make
fi1ed *a.me!ts ever. '% da.s at a rate of 1+ *ere!t a!d reeive floati!- *a.me!ts ever. '% da.s at a rate
of LI:OP mi!us 1%% #asis *oi!ts. @etermi!e the !et ash flo" o! its first *a.me!t from the s"a* o!l..
a. a! outflo" of ;&(&8%%%
#. a! i!flo" of ;/3&8%%%
. a! outflo" of ;13&8%%%
d. a! outflo" of ;)&%8%%%
e. !o!e of the a#ove
(. @etermi!e the value of a! i!terest rate all o*tio! at the maturit. of a loa! if the all has a strike of 1(
*ere!t8 a fae value of ;&% millio!8 the loa! matures '% da.s after the all is e1erised8 the all e1*ires i!
)% da.s8 the all *remium is ;(%%8%%%8 a!d LI:OP e!ds u* at 1+ *ere!t.
a. ;1(&8%%%
#. ;$+8+++
. ;(%$8%%%
d. 2;3&8%%%
e. !o!e of the a#ove
+. , #a!k makes a ;& millio! 1$%2da. *ure disou!t loa! at LI:OP of ' *ere!t. ,t the same time8
ho"ever8 it e1erises a! i!terest rate *ut that has a strike of 11 *ere!t. <i!d the a!!uali5ed rate of retur!
o! the loa!. I-!ore the ost of the *ut.
a. '.+/ *ere!t
#. 11./3 *ere!t
. ' *ere!t
d. 11 *ere!t
e. !o!e of the a#ove
/. 0hih of the follo"i!- #est desri#es a! i!terest rate a*4
a. a ash2a!d2arr. hed-e
#. a series of for"ard o!trats
. a series of i!terest rate alls
d. a all o*tio! s*read
e. !o!e of the a#ove
&. , #a!k #u.s a! i!terest rate floor i! o!Du!tio! "ith a loa! it holds that "ill make four semia!!ual
*a.me!ts starti!- si1 mo!ths from !o". The floor has a strike of ' *ere!t. LI:OP at the #e-i!!i!- of
the four *a.me!t *eriods is 1%8 118 $ a!d $.) *ere!t. O! "hih dates "ill the floor "riter make a
*a.me!t to the #a!k4
a. !o" a!d i! (/ mo!ths
#. i! 1$ a!d (/ mo!ths
. i! 1( a!d 1$ mo!ths
d. i! )8 1(8 1$ a!d (/ mo!ths
e. !o!e of the a#ove
). The adva!ta-e of a ollar over a a* is
a. it lo"ers the out2of2*oket ost
#. it offers the *ossi#ilit. of -reater retur!s
. it elimi!ates the risk
d. it has lo"er tra!satio! osts
e. !o!e of the a#ove
3. ,! <P, is most like "hih of the follo"i!- tra!satio!s
a. a! i!terest rate a*
#. a! i!terest rate floor
. a! i!terest rate ollar
d. a for"ard o!trat
e. !o!e of the a#ove
$. Prii!- the floati!- rate *ortio! of a s"a* duri!- its life re6uires
1-35
Co*.ri-ht 7 (%%1 #. Harourt8 I!
a. fi!di!- the !e" floati!- rate
#. assumi!- that the market value "ill -o to *ar o! the !e1t *a.me!t date
. fi!di!- its *rese!t value usi!- the fi1ed rate as the disou!t rate
d. fi!di!- its urre!t market value a!d om*ou!di!- it to the !e1t ou*o! date
e. !o!e of the a#ove
'. 0hih of the follo"i!- "a.s of termi!ati!- a! i!terest rate s"a* a! #e do!e o!l. if a**roved #. the
ou!ter*art.4
a. e1erisi!- a! o*tio! "ith the ou!ter*art.
#. sale or assi-!me!t to a!other ou!ter*art.
. reversal or offset
d. all of the a#ove
e. !o!e of the a#ove
1%. S"a*tio!s are like for"ard s"a*s i! "hih of the follo"i!- "a.s
a. :oth are free of redit risk
#. :oth re6uire the e1eutio! of a s"a* at e1*iratio!
. The. have the same *rie
d. :oth are traded o! s"a*tio! e1ha!-es
e. !o!e of the a#ove
11. <i!d the ost of a orretl. *ried i!terest rate all o! +%2da. LI:OP if the urre!t for"ard rate is 3
*ere!t8 the strike is 3 *ere!t8 the o!ti!uousl. om*ou!ded risk2free rate is ).( *ere!t8 the volatilit. is
1( *ere!t a!d the o*tio! e1*ires i! o!e .ear. The !otio!al *ri!i*al is ;+% millio!.
a. ;.%%+1
#. ;'+8%%%
. ;38$13
d. ;%.%%1(
e. ;+)8%%%
1(. 0hih of the follo"i!- is a limitatio! of usi!- the :lak model to *rie i!terest rate o*tio!s4
a. the risk2free rate is !ot o!sta!t
#. the volatilit. is !ot o!sta!t
. i!terest rates are !ot lo-!ormall. distri#uted
d. all of the a#ove
e. !o!e of the a#ove
1+. ,! <P, differs from a! i!terest rate s"a* i! "hih of the follo"i!- "a.s4
a. ,! <P, has more redit risk
#. <P,s are federall. re-ulated
. Traditio!all. the *a.me!t i! a! <P, is dela.ed
d. <P,s are used o!l. #. #a!ks a!d s"a*s are used o!l. #. or*oratio!s
e. !o!e of the a#ove
1/. 0hih of the follo"i!- i!formatio! is !ot re6uired to determi!e a s"a*tio! *a.off at e1*iratio!4
a. the e1erise rate
#. the term struture of 5ero ou*o! rates at the s"a*tio! e1*iratio!
. the maturit. of the u!derl.i!- s"a*
d. the .ield o! a #o!d of e6uivale!t maturit. as the s"a*
e. !o!e of the a#ove
1&. <i!d the *a.off of a! i!terest rate all o*tio! o! the o!e2*eriod rate "ith a! e1erise rate of 1% *ere!t if
the o!e2*eriod rate at e1*iratio! is 11 *ere!t.
a. .1(
#. 5ero
. .%1
d. .%%'%
e. !o!e of the a#ove
1). I!terest rate s"a* *a.me!ts are made
1-36
Co*.ri-ht 7 (%%1 #. Harourt8 I!
a. o! the last da. of the 6uarter
#. o! the first da. of eah mo!th
. at "hatever dates are a-reed u*o! #. the ou!ter*arties
d. o! the 1&th of the a-reed2u*o! mo!ths
e. !o!e of the a#ove
13. ,! i!terest rate s"a* is e6uivale!t to "hih of the follo"i!- tra!satio!s
a. a series of <P,s
#. the *urhase of a stok a!d sale of a #o!d
. #orro"i!- mo!e. at o!e floati!- rate a!d le!di!- it at a!other
d. all of the a#ove
e. !o!e of the a#ove
1$. 0hih of the follo"i!- strate-ies is a**ro*riate if .ou e1*et i!terest rates to i!rease4
a. a *a.2fi1ed8 reeive2floati!- s"a*
#. a short i!terest rate all
. a short for"ard rate a-reeme!t
d. all of the a#ove
e. !o!e of the a#ove
1'. Com*a!ies use i!terest rate s"a*s for all of the follo"i!- reaso!s e1e*t
a. to o!vert floati!- rate loa!s to fi1ed rate loa!s
#. to alter the *atter!s of asset ash flo"s
. to o!vert fi1ed rate loa!s to floati!- rate loa!s
d. to save le-al a!d *a*er"ork osts
e. !o!e of the a#ove
(%. 0hih of the follo"i!- is the fi1ed rate o! a t"o2.ear s"a* if o!e2.ear LI:OP is ) *ere!t a!d t"o2.ear
LI:OP is 3 *ere!t4 HUse +)% da.s i! disou!ti!-.I
a. ).3& *ere!t
#. ).%% *ere!t
. 3.%% *ere!t
d. 3.+& *ere!t
e. !o!e of the a#ove
(1. , firm e!tered i!to a! i!terest rate s"a* to *a. a fi1ed rate of & *ere!t a!!uall. for t"o .ears. It is !o"
!i!e mo!ths i!to the s"a*. The three2mo!th rate is $ *ere!t a!d the 1&2mo!th rate is $.& *ere!t. The
u*omi!- floati!- *a.me!t is at the rate &.( *ere!t. 0hih of the follo"i!- is the value of the s"a* *er
;1 !otio!al *ri!i*al. H,ll rates are LI:OP a!d use +)% da.s i! disou!ti!-.I
a. %.%++(
#. %.%+1/
. 2%.%%1$
d. 1.%%%%
e. !o!e of the a#ove
((. 0hih of the follo"i!- stateme!ts a#out i!terest rate o*tio!s a!d9or i!terest rate s"a*s is true4
a. i!terest rate s"a*s as "ell as a*s a!d floors *a. off o! the date o! "hih the rate is determi!ed
#. a om#i!atio! of i!terest rate a*s is e6uivale!t to s a s"a*
. i!terest rate a*s a!d floors adhere to *ut2all *arit. if there is o!l. a si!-le e1*iratio!
d. a lo!- all a!d short *ut "ith the same strike rate set at the s"a* rate re*liates a s"a*
e. !o!e of the a#ove
(+. , *a.er s"a*tio! is e1*iri!-. The u!derl.i!- s"a* has a t"o .ear maturit.. Th e *rese!t value fators
are .'(&' Ho!e .earI a!d .$)&1 Ht"o .earsI. The strike rate is 3 *ere!t. 0hat is the value of the s"a*tio!
*er ;1 !otio!al *ri!i*al.
a. %.%%%%8 si!e it is out2of2the2mo!e.
#. 1.%%%%
. %.%3&+
d. %.%%'&
e. !o!e of the a#ove
(/. To determi!e the fi1ed rate o! a s"a*8 .ou "ould
1-37
Co*.ri-ht 7 (%%1 #. Harourt8 I!
a. use *ut2all *arit.
#. *rie it as the issua!e of a fi1ed rate #o!d a!d *urhase of a floati!- rate #o!d or vie versa
. use the same fi1ed rate as that of a 5ero ou*o! #o!d of e6uivale!t maturit.
d. all of the a#ove methods are e6uivale!t
e. !o!e of the a#ove
(&. ,ll of the follo"i!- are uses of s"a*tio!s e1e*t
a. to s*eulate o! i!terest rates
#. to -ive a firm fle1i#ilit. i! future #orro"i!-s
. to #orro" mo!e.
d. to reate alla#le from !o!2alla#le #o!ds
e. !o!e of the a#ove
CHAPTER 15: ADVANCED DERIVATIVES AND STRATEGIES
,!s"er 6uestio!s 1 throu-h ) a#out i!suri!- a *ortfolio ide!tial to the SBP &%% "orth ;1(8&%%8%%% "ith a three2
mo!th hori5o!. The risk2free rate is 3 *ere!t. Three2mo!th T2#ills are availa#le at a *rie of ;'$.)/ *er ;1%%
fae value. The SBP &%% is at +$&. Puts "ith a! e1erise *rie of +'% are availa#le at a *rie of 1+. Calls "ith a!
e1erise *rie of +'% are availa#le at a *rie of 1+.1(&. Pou!d off .our a!s"ers to the !earest i!te-er.
1. 0hat is the mi!imum value of the i!sured *ortfolio4
a. ;1)8)3(8+//
#. ;1(8&%%8%%%
. ;1(8%'183%'
d. ;1(8(//8$'$
e. ;1+8+3&8%%%
(. Ho" ma!. *uts should #e used to i!sure this *ortfolio4
a. 1((8&$/
#. +18+'3
. )(8$1/
d. ')18&+$
e. +(8/)$
+. If the SBP &%% e!ds u* at /%18 determi!e the u*side a*ture.
a. ').3 *ere!t
#. ') *ere!t
. ''.+ *ere!t
d. '/ *ere!t
e. 1%% *ere!t
/. If the i!sured *ortfolio o!sisted e!tirel. of alls a!d T2#ills8 ho" ma!. "ould #e used4
a. 1'81/+ alls a!d 1(/813) T2#ills
#. +18+'3 alls a!d 1((8//' T2#ills
. '++8(+$ alls a!d (8&/3 T2#ills
d. +18/%3 alls a!d 11'8''3 T2#ills
e. +(8/)$ alls a!d +(8/)$ T2#ills
&. If the i!sured *ortfolio "ere d.!amiall. hed-ed "ith stok i!de1 futures8 ho" ma!. futures "ould #e
used4 The all delta is .&( a!d the o!ti!uous risk2free rate is &./$ *ere!t. Eah futures has a multi*lier
of &%% a!d a *rie of +$$.)&.
a. )%
#. )/
. +%
d. +(
e. !o!e of the a#ove
). If the i!sured *ortfolio "ere d.!amiall. hed-ed "ith T2#ills8 ho" ma!. T2#ills "ould #e used4
a. 1)8++(
#. )+8%%(
. 1()83(+
d. )18)3(
e. +(8/)$
1-38
Co*.ri-ht 7 (%%1 #. Harourt8 I!
3. Su**ose a firm offers a! e6uit.2li!ked seurit.. The fae value is ;1 millio! a!d its *a.off is #ased o! a!.
a**reiatio! i! a! e6uit. i!de1 urre!tl. at $&&.&%. It has determi!ed that of the ;1 millio! raised8 it a!
struture the o*tio! om*o!e!t so that its value is ;1+&8%%%. Curre!tl. a! at2the2mo!e. all o*tio! is
"orth ;1(&. 0hat *ere!ta-e of the -ai! i! the i!de1 a! it offer4
a. '( Q
#. 1%% Q
. &% Q
d. $.(+ Q
e. !o!e of the a#ove
$. Su**ose a! i!vestor a-rees to s"a* the SBP &%% retur! for the Pussell (%%% Hsmall2stokI retur!. The
SBP &%% i!reases from /&%.'1 to /&).)% "hile the Pussell (%%% i!reases from ()%.3+ to ()(.$(. 0hat
"ould #e the i!vestorEs ash flo" o! a !otio!al *ri!i*al of ;1& millio!.
a. ;)'8%/&
#. ;1&81(%8(+'
. 2;1&81$'8($/
d. 2;)'8%/&
e. !o!e of the a#ove
'. 0hih of the follo"i!- stateme!ts a#out mort-a-e2#aked seurit. stri*s is true4
a. #oth i!terest2o!l. a!d *ri!i*al2o!l. stri*s are su#Det to *re2*a.me!t risk
#. o!l. *ri!i*al2o!l. stri*s are su#Det to *re*a.me!t risk
. o!l. i!terest2o!l. stri*s are su#Det to *re*a.me!t risk
d. the *re*a.me!t risk of i!terest2o!l. a!d *ri!i*al2o!l. stri*s is *reisel. offsetti!-
e. !o!e of the a#ove
1%. , hooser o*tio! is similar to "hat other t.*e of o*tio! strate-.
a. *ut2all *arit.
#. a overed all
. a *rotetive *ut
d. a om#i!atio! #ull a!d #ear s*read
e. !o!e of the a#ove
11. The !um#er of *ossi#le fi!al avera-e *ries i! a! ,sia! o*tio! for a four *eriod #i!omial model is
a. $
#. /
. 1)
d. +(
e. !o!e of the a#ove
1(. , look#ak all o*tio! *rovides the ri-ht
a. to ha!-e the stok o! "hih the o*tio! is "ritte!
#. to #u. the stok at its lo"est *rie over the o*tio!Es life
. to i!sure a stok a-ai!st loss
d. to ha!-e .our mi!d a#out the e1erise *rie
e. !o!e of the a#ove
1+. If the stok *rie is urre!tl. +)8 the e1erise *rie is +& a!d the stok e!ds u* at //8 the value of a! asset2
or2!othi!- o*tio! at e1*iratio! is
a. +&
#. $
. '
d. //
e. !o!e of the a#ove
1/. 0hih of the follo"i!- is harateristi of a #asis s"a*4
a. o!e *art. *a.s a floati!- rate a!d the other *a.s a fi1ed rate
#. o!e *art. *a.s the #asis o! a futures tra!satio!
. eah *art. *a.s a floati!- rate
d. at least o!e *art.Cs *a.me!ts is #ased o! a! o*tio! retur!
e. !o!e of the a#ove
1&. ,! e6uit. for"ard o!trat is
a. a for"ard o!trat o! LI:OP seured #. a stok as ollateral
1-39
Co*.ri-ht 7 (%%1 #. Harourt8 I!
#. a futures o!trat o! a stok i!de1 that is !ot marked2to2market
. a all o*tio! o! a stok "ith -reater do"!side risk tha! a! ordi!ar. all
d. a for"ard o!trat "hose *a.off is determi!ed #. a stok or i!de1
e. !o!e of the a#ove
1). , seurit. that *a.s off the retur! from a om#i!atio! of mort-a-es is alled a
a. homeo"!ersC e6uit. laim
#. mort-a-e *ortfolio
. mort-a-e o*tio!
d. mort-a-e2#aked seurit.
e. !o!e of the a#ove
13. ,sia! o*tio!s are also alled
a. avera-e *rie o*tio!s
#. Paifi o*tio!s
. i!stallme!t o*tio!s
d. !o2re-rets o*tio!s
e. !o!e of the a#ove
1$. 0hih of the follo"i!- stateme!ts is orret a#out ash2or2!othi!- o*tio!s
a. the. are su#Det to !o redit risk
#. the. must #e *ried #. the #i!omial model
. the. have lo"er u*side -ai!s a!d lo"er do"!side losses tha! ordi!ar. o*tio!s
d. the. are e6uivale!t to short *ositio!s i! asset2or2!othi!- o*tio!s
e. !o!e of the a#ove
1'. , o!sta!t maturit. s"a* has "hih of the follo"i!- harateristis
a. the s"a* maturit. is held o!sta!t at a fi1ed !um#er of .ears
#. the floati!- *a.me!t is usuall. #ased o! the rate o! a Treasur. !ote
. the s"a* alls for all *a.me!ts to #e made at its maturit.
d. the floati!- *a.me!t a!d the maturit. are #oth o!sta!t
e. !o!e of the a#ove
(%. , ra!-e floater is a seurit. "ith "hih of the follo"i!- harateristis
a. the *a.me!ts ra!-e from a -ive! ma1imum to a -ive! mi!imum
#. the maturit. is limited to a fi1ed ra!-e
. its *a.me!ts are #ased o! "hether the rate sta.s "ithi! a ra!-e
d. all of the a#ove
e. !o!e of the a#ove
(1. , seurit. that is su#2divided i!to seurities alled tra!hes is alled a
a. *ri!i*al2o!l. stri*
#. asia! look#ak o*tio!
. ra!-e mort-a-e stri*
d. ollaterali5ed mort-a-e o#li-atio!
e. !o!e of the a#ove
((. 0hih of the follo"i!- is a *ath2i!de*e!de!t o*tio!
a. a fi1ed strike ,sia! all o*tio!
#. a sta!dard Euro*ea! all o*tio!
. a! u*2a!d2out all o*tio!
d. a! ,meria! *ut o*tio!
f. !o!e of the a#ove
(+. 0hih of the follo"i!- is a reaso! for usi!- e6uit. s"a*s
a. to realloate a stok *ortfolio amo!- asset lasses
#. to s*eulate o! the *erforma!e of a stok or i!de1
. to avoid the tra!satio! ost of tradi!- i! i!dividual stoks
d. all of the a#ove
e. !o!e of the a#ove
(/. 0hih of the follo"i!- #est desri#es the ost of *ortfolio i!sura!e4
a. the mar-i! *ut do"! o! the futures o!trat
1-40
Co*.ri-ht 7 (%%1 #. Harourt8 I!
#. the -ai! -ive! u* "he! the stok moves u*
. the differe!e #et"ee! the all a!d *ut *ries
d. all of the a#ove
e. !o!e of the a#ove
(&. 0hih of the follo"i!- is !ot a t.*e of strutured !ote4
a. ra!-e floater
#. i!verse floater
. diff floater
d. reverse floater
e. !o!e of the a#ove
CHAPTER 16: FINANCIAL RISK MANAGEMENT
1. Pisk ma!a-eme!t e!om*asses all of the follo"i!- e1e*t
a. determi!i!- a firmCs atual level of risk
#. determi!i!- a firmCs desired level of risk
. setti!- *oliies a!d *roedures
d. mo!itori!- .our *ositio! after2the2fat
e. !o!e of the a#ove
(. Market risk is "hih of the follo"i!-
a. the risk assoiated "ith faili!- to *ro*erl. reord market tra!satio!s
#. the risk that a dealer "ill lose market share to a om*eti!- dealer
. the risk assoiated "ith moveme!ts i! suh fators as i!terest rates a!d e1ha!-e rates
d. the risk of the -over!me!t delari!- a tra!satio! ille-al
e. !o!e of the a#ove
+. 0hat is the reaso! for u!dertaki!- a -amma hed-e4
a. -over!me!t re-ulatio!
#. the *ossi#ilit. of ou!ter*art. default
. ha!-es i! volatilit.
d. lar-e moveme!ts i! the u!derl.i!-
e. !o!e of the a#ove
/. 0hih of the follo"i!- is the i!ter*retatio! of a O,P of ;& millio! for o!e .ear at .%&.
a. the *ro#a#ilit. is .%& that the firm "ill lose at least ;& millio! i! o!e .ear
#. the *ro#a#ilit. is at least .%& that the firm "ill lose ;& millio! i! o!e .ear
. the *ro#a#ilit. is .%& that the firm "ill lose ;& millio! i! o!e .ear
d. the *ro#a#ilit. is less tha! .%& that the firm "ill lose ;& millio! i! o!e .ear
e. !o!e of the a#ove
&. 0hih of the follo"i!- are !ot methods of determi!i!- the O,P4
a. simulatio! method
#. historial method
. estimatio! method
d. a!al.tial method
e. !o!e of the a#ove
). 0hih of the follo"i!- methods are !ot used to redue redit risk4
a. delta2-amma2ve-a hed-i!-
#. ollateral
. marki!- to market
d. limiti!- the amou!t of #usi!ess .ou do "ith a *art.
e. !o!e of the a#ove
3. 0hih of the follo"i!- are t.*es of risks faed #. a derivatives dealer4
a. ta1 risk
#. o*eratio!al risk
. aou!ti!- risk
d. le-al risk
e. !o!e of the a#ove
1-41
Co*.ri-ht 7 (%%1 #. Harourt8 I!
$. 0hat does !etti!- *ermit a firm to do4
a. su#trat losses from *rie i!reases from losses from *rie dereases
#. !et its tra!satio!s "ith a -ive! ou!ter*art. a-ai!st eah other
. !et all of its -ai!s a-ai!st all of its losses
d. all of the a#ove
e. !o!e of the a#ove
'. S.stemi risk is
a. the risk of a failure of the e!tire fi!a!ial s.stem
#. the risk assoiated "ith #road market moveme!ts
. the risk of a failure of a firmCs fi!a!ial risk ma!a-eme!t s.stem
d. the risk of lar-e *rie moveme!ts throu-hout the fi!a!ial s.stem
e. !o!e of the a#ove
1%. JI!de*e!de!t risk ma!a-eme!tL mea!s "hih of the follo"i!-4
a. that risk ma!a-eme!t of a firm is i!de*e!de!t of its overall or*orate *oli. deisio!s
#. that the risk ma!a-eme!t fu!tio! is *rovided #. a! outside o!sulti!- firm
. that the risk ma!a-er a!!ot #e i!flue!ed #. the traders
d. that the risk ma!a-er is i!de*e!de!t of the firmCs se!ior ma!a-ers
e. !o!e of the a#ove
11. E!d users are all of the follo"i!- t.*es of or-a!i5atio!s except4
a. i!vestme!t fu!ds
#. !o!2fi!a!ial or*oratio!s
. -over!me!ts
d. fi!a!ial i!stitutio!s
e. !o!e of the a#ove
1(. 0hat is the *rimar. ativit. of a firmCs fro!t offie4
a. risk ma!a-eme!t
#. tradi!-
. *rii!- derivative *roduts
d. auditi!-
e. !o!e of the a#ove
1+. , total retur! s"a* is #est desri#ed as
a. , s"a* i! "hih the *a.me!ts i!lude o!l. a*ital -ai!s
#. a s"a* i! "hih the total retur! o! a stok i!de1 is s"a**ed for the total retur! o! a #o!d
. a s"a* i! "hih the retur! o! o!e #o!d is s"a**ed for some other *a.me!t
d. a s"a* desi-!ed to su#stitute for a #asis s"a*
e. !o!e of the a#ove
1/. 0hih of the follo"i!- #est desri#es a redit default s"a*4
a. it is *roteted a-ai!st default
#. it has a hi-her rate to om*e!sate for the *ossi#ilit. of o!e *art. defaulti!-
. it arries a hi-her redit rati!- tha! most other s"a*s
d. it off if a!other *art. e1ter!al to the s"a* defaults
e. !o!e of the a#ove
1&. 0hih of the follo"i!- stateme!ts is !ot true a#out a redit s*read o*tio!4
a. it is a! o*tio! o! the s*read of a #o!d over a refere!e #o!d
#. its value "ould ha!-e "ith ha!-es i! i!vestorsC *ere*tio!s of a *art.Cs redit 6ualit.
. it re6uires *a.me!t of a *remium u* fro!t
d. it re6uires that the u!derl.i!- #o!d #e relativel. li6uid
e. !o!e of the a#ove
1). 0hih of the follo"i!- forms of hed-i!- re6uires the use of o*tio!s4
a. delta hed-i!-
#. ve-a hed-i!-
. -amma hed-i!-
d. redit risk hed-i!-
1-42
Co*.ri-ht 7 (%%1 #. Harourt8 I!
e. !o!e of the a#ove
13. If a firm e!-a-es i! risk ma!a-eme!t to a*ture ar#itra-e *rofits8 "hat is it eas. to overlook4
a. the additio!al redit risk it assumes
#. the ost is -reater tha! the #e!efit
. the market risk is hi-h
d. all of the a#ove
e. !o!e of the a#ove
1$. @erivatives dealers *rimaril. o!dut derivatives tra!satio!s for "hih of the follo"i!- reaso!s4
a. to e!ha!e the retur!s o! their other i!vestme!t tra!satio!s
#. to *rofit off of their a#ilit. to e1eute trades at the ri-ht time
. to *rofit off of their market maki!- servies
d. to *rovide servies to e!ha!e the overall attrative!ess of their *rodut li!e
f. !o!e of the a#ove
1'. The risk that errors a! our i! i!*uts to a *rii!- model is alled
a. i!*ut risk
#. model risk
. *rii!- risk
d. valuatio! risk
e. !o!e of the a#ove
(%. Hed-e aou!ti!- is "hih of the follo"i!-4
a. desri#i!- all hed-es i! foot!otes to aou!ti!- stateme!ts
#. deferri!- all reordi!- of hed-e *rofits a!d losses u!til the hed-e is over
. assoiati!- the derivative *rofit or loss "ith the i!strume!t #ei!- hed-ed
d. all of the a#ove
e. !o!e of the a#ove
(1. 0hih of the follo"i!- stateme!ts is !ot true a#out fair value hed-es4
a. it re6uires a method of determi!i!- the fair value of the derivative
#. it defers reo-!itio! of all *rofits a!d losses u!til the hed-e is termi!ated
. it "ill ause ear!i!-s to flutuate if hed-es are !ot effetive
d. it re6uires *ro*er doume!tatio!
e. !o!e of the a#ove
((. 0hih of the follo"i!- stateme!ts is !ot true a#out fair value hed-es4
a. it re6uires ide!tifiatio! of the effetive a!d i!effetive *arts
#. derivatives *rofits a!d losses are tem*oraril. arried i! a! e6uit. aou!t
. it re6uires *ro*er doume!tatio!
d. o!l. dealer firms are eli-i#le to use it
e. !o!e of the a#ove
(+. 0hih of the follo"i!- methods is !ot *ermitted to satisf. the SECCs re6uireme!ts for dislosure of
derivatives ativit.4
a. a! e1*la!atio! i! the hairma!Cs letter
#. a Oalue2at2Pisk fi-ure
. a se!sitivit. a!al.sis
d. a ta#le of market values a!d related terms
e. !o!e of the a#ove
(/. 0hih of the follo"i!- i!strume!ts ould #e used to e1eute a delta8 -amma a!d ve-a hed-e4
a. a s"a*
#. a! o*tio!
. a futures
d. a! <P,
e. !o!e of the a#ove
1-43
Co*.ri-ht 7 (%%1 #. Harourt8 I!
(&. 0hih of the follo"i!- is a**ro1imatel. the O,P at & *ere!t of a *ortfolio of ;1% millio! of asset ,8 "hose
e1*eted retur! is 1&Q a!d volatilit. is +&Q8 a!d ;1& millio! of asset :8 "hose e1*eted retur! is (1Q a!d
volatilit. is +%Q8 "here the orrelatio! #et"ee! the t"o assets is .(.
a. ;&.) millio!
#. ;1% millio!
. ;1& millio!
d. ;1.(& millio!G
e. !o!e of the a#ove
1-44
Co*.ri-ht 7 (%%1 #. Harourt8 I!