81. Futures markets have grown rapidly because futures
A. are standardized.
B. have lower default risk.
C. are liqu
D. d. all of the above
Answer
D. d. all of the above
82. If you sold a short contract on financial futures you hope interest rates
A. rise.
B. fall.
C. are stable.
D. fluctuate.
Answer
A. rise.
83. Which of the following is not a financial derivative?
A. Stock
B. Futures
C. Options
D. Forward contract
Answer
A. Stock
84. A swap agreement created through the synthesis of two swaps differing in duration for the purposeof fulfilling the specific time frame needed of an investor
A. Forward starting swap
B. Roller coaster swap
C. Amortizing swap
D. Accreting swap
Answer
A. Forward starting swap
85. A swap where interest rate risk can be shifted byconverting floating rate liability or vice versa
A. Range accrual swaps
B. Index amortizing swap
C. Asian swaps
D. Roller coaster swap
Answer
A. Range accrual swaps
86. A swap where principal amount decreases over prespecified points of time over the life time of swap
A. Forward starting swap
B. Roller coaster swap
C. Amortizing swap
D. Asian swaps
Answer
A. Forward starting swap
87. A fixed-for-floating interest rate swap with the floating rate leg tied to an index of daily interbankrates or overnight
A. Power swap
B. Leveraged swap
C. Quanto swap
D. Overnight index swaps
Answer
D. Overnight index swaps
88. Swaps whose notional accretes when a certain floating rate,often a different rate from the one usedto pay,lies within a range.
A. Range accrual swaps
B. Asian swaps
C. Index amortizing swap
D. Bermudan swaps
Answer
A. Range accrual swaps
89. Standardized futures contracts exist for all of the following underlying assets except:
A. stock indexes.
B. gold.
C. common stocks.
D. Treasury bonds.
Answer
C. common stocks.
90. Which of the following does the most to reduce default risk for futures contracts?
A. Marking to market.
B. Flexible delivery arrangements.
C. High liquidity.
D. Credit checks for both buyers and sellers.
Answer
A. Marking to market.
91. Which of the following is most similar to a stock broker?
A. Pit trader.
B. Local.
C. Floor broker.
D. Futures commission merchant.
Answer
D. Futures commission merchant.
92. Using futures contracts to transfer price risk is called:
A. hedging.
B. diversifying
C. arbitrage.
D. speculating.
Answer
A. hedging.
93. Which of the following is best described as selling a synthetic asset and simultaneouslybuying the actual asset?
A. Diversifying.
B. Arbitrage.
C. Speculating.
D. Hedging.
Answer
B. Arbitrage.
94. Which of the following has the right to sell an asset at a predetermined price?
A. A put writer.
B. A put buyer.
C. A call buyer.
D. A call writer.
Answer
B. A put buyer.
95. Which of the following is potentially obligated to sell an asset at a predetermined price?
A. A put buyer.
B. A call buyer.
C. A put writer.
D. A call writer.
Answer
D. A call writer.
96. Which of the following actions will not close a long position in a call option?
A. Selling a call with the same strike price, expiration, and underlying asset.
B. Buying a put with the same strike price, expiration, and underlying asset.
C. Exercising the call.
D. Allowing the call to expire.
Answer
B. Buying a put with the same strike price, expiration, and underlying asset.
97. Which of the following strategies will be profitable if the price of the underlying asset is expectedto decrease?
A. Selling a call.
B. Selling a put.
C. Buying a put.
D. Buying a call.
Answer
A. Selling a call.
98. Which of the following investment strategies has unlimited profit potential?
A. Writing a call.
B. Bull spread.
C. Protective put.
D. Covered call.
Answer
C. Protective put.
99. A swap deal wherein floating rate payer pays the floating rate square or cubic or any power of therate to the counter party
A. Leveraged swap
B. Quanto swap
C. Power swap
D. Overnight index swap
Answer
C. Power swap
100. A swap agreement that pays and resets at the same time.
A. Constant maturity swap
B. In-arrear swap
C. Roller coaster swap
D. Amortizing swap
Answer
B. In-arrear swap
101. ___ risk is a loss may occur from the failure of another party to perform according tothe terms of a contract?
A. Credit
B. Currency
C. Market
D. Liquidity
Answer
A. Credit
102. Financial derivatives includes?
A. Stock
B. Bonds
C. Future
D. None of these
Answer
C. Future
103. By hedging a portfolio ; a bank manager
A. Reduces interest rate risk
B. Increases re investment risk
C. Increases exchange rate risk
D. None of these
Answer
A. Reduces interest rate risk
104. A long contract requires that the investor
A. Sell securities in the future
B. Buy securities in the future
C. Hedge in the future
D. Close out his position in the future
Answer
B. Buy securities in the future
105. The disadvantage of swaps is that they
A. Lack of liquidity
B. Suffer from default risk
C. Both A & B
D. B only
Answer
C. Both A & B
106. Hedging by buying an option
A. Limits gain
B. Limits losses
C. Limits gain & losses
D. Has no limit on losses
Answer
B. Limits losses
107. All other things held constant premium on options will increase when the
A. Exercise price increases
B. Volatility of the underlying assets fails
C. Term to maturity increases
D. Both B & C
Answer
C. Term to maturity increases
108. An option allowing the owner to sell an asset at a future date is a ___
A. Put option
B. Call option
C. Forward option
D. Future contract
Answer
A. Put option
109. Composite value of traded stocks group of secondary market is classified as
A. Stock index
B. Primary index
C. Stock market index
D. Limited liability index
Answer
C. Stock market index
110. ___ is the minimum amount which must be remained in a margin account
A. Maintenance margin
B. Variation margin
C. Initial margin
D. None of these
Answer
C. Initial margin
111. The number of future contract outstanding is called ___ ?
A. Liquidity
B. Float
C. Volume
D. Turnover
Answer
A. Liquidity
112. The amount paid for an option is the
A. Strike price
B. Discount
C. Premium
D. Yield
Answer
C. Premium
113. Futures contracts are more successful than interest rate forward contracts because they :
A. are less liquid
B. have greater default risk
C. are more liquid
D. have an interest rate tied to the discount rate
Answer
C. are more liquid
114. The payoffs for financial derivatives linked to
A. Securities that will be issued in the future
B. The volatality of interest rates
C. previously issued securities
D. none of the above.
Answer
C. previously issued securities
115. Which of the following is not a problem with an interest rate forward contract?
A. Low interest rate
B. default risk
C. lack of liquidity
D. finding a counterparty
Answer
A. Low interest rate
