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M & B
Chapter 11 Test Questions
| Question | Answer |
|---|---|
| A hedger in the financial futures market... | either buys or sells so that underlying asset gains/losses are inversely related to futures contract gains/losses |
| A hedger in the financial funtures market... | seeks to offset the price risk in its spot market position with the nearly equal but opposite price risk of the futures position |
| The purchase of one million dollars of Treasury Bonds, delivered in 60 days, from a government securities dealer is: | a forward contract |
| An agreement between a business and a large money center bank to sell 10 million dollars of T-bills in sixty days is called a... | forward contract |
| Futures contracts differ from forward contracts in all of the following ways except... | forward contracts involve in intermediary or exchange |
| The purchase of U.S Treasury bonds for immediate delivery is a ________ market transaction. | spot |
| What is the relationship between spot market prices and forward market prices of a good or financial asset? | Forward prices are expected future spot prices |
| In a forward contract one party to the contract deals with: | the counter-party of the forward contract |
| Futures contracts differ from forward contracts in that... | futures contracts are marked to market daily with changes in value added or subtracted from buyer and seller |
| An investor planning to buy IBM stock is 30 days can protect himself against price risk by: | buying a IBM call option that matures in 30 days |
| A portfolio manager is concerned that the expected drop in interest rates is going to lower the yeild on the $1,000,000 of T-bill she plans to buy in 3 months. She can hedge this potential interest rate risk by: | Taking a long position in 3-month T-bill futures contract |
| If a corporation wanted to guarantee its long-term costs of financing an investment project, it could... | sell T-bond futures for when the funds were needed |
| Which of the following intentionally assumes price risk? | speculators and traders |
| A hedger who holds his futures position after his spot risk has abated is a | double hedger |
| An agreement with the futures exchange to buy is a ________ position; to sell, a __________ position? | short; long |
| A margin call on futures position, which has moved adversely, is called a __________ margin requirement? | maintenance |
| The price sensitivity rule may help | determine the number of futures contracts to trade, present conditions for hedge to occur and determine the relative price variability of a futures contract and underlying assets given a change in interest rates |
| All of the following will gain if the price of any underlying instrument falls except: | the buyer of a futures contract |
| All of the following is true except: | Swap parties usually have the same level of credit risk |
| Which is not a function of the CFTC? | to make sure people maintain thier margin level |
| A farmer growing wheat is _______ in wheat and may hedge price risk by _______ wheat futures. | long; selling |
| A(n) _________ margin is deposited at the beginning (purchase/sell) of the futures contract; thereafter, a ________ margin is required depending on the movement in the price of the futures contract. | initial; maintenance |
| First National Bank recently purchased a T-bill futures contract to hedge a risk position at the bank. If the price of the futures contract is increasing.... | First National is neither "gaining" or "losing" |
| Daily changes in future prices means one party (hedger or speculator) has gained; another lost money on the contract. How are the exchanges able to keep the "daily" loser in the contract and prevent default? | by daily margin calls if needed |
| An S&L with a high negative GAP position wishing to hedge all or part of its interest rate risk might... | sell financial futures and sell puts on financial futures |
| A small commercial bank with rate sensitive assets greater than rate sensitive liabiliities sells T-bill financial futures. The bank is.... | speculating |
| A five member federal regulatory commission which serves as the primary regulator of the futures market is the: | Commodity Futures Trading Commission |
| An insurance company can invest funds, which are coming to the company in the future, at today's interest rates by | buying financial futures |
| A bank which hedges its future funding costs in the T-bill futures market is: | accepting some basis risk |
| Which of the following is true about hedging using duration analysis? | If market value weighted asset duration is greater than the liability conunterpart, sell financial futures to "immunize" |
| Which one of the following statements is true about derivative securities? | Derivative securities are used to minimize or eliminate an investors exposure to various types of risk, derivatives are basede upon existing securities, and risk to an investor can be caused by interst rate changes, commodity prices or stock prices |
| The value of an option varies directly with: | the price variance of the underlying commodity, the time to expiration and the level of interest rates |
| All of the following are risks associated with the futures contracts except: | price risk |
| What aciton would the holder of a maturing call option take with an option which cost $300, ahd a strike price of $50 and the market value of the stock was $52? | exercise the option |
| An European option is an option contract that allows the holder to.... | exercise the option only on the expiration date |
Created by:
callieco