19th 6/1/2010
Date: June
~16:00 am
Time: 13:45
Revision
3
Sections
A 45 multiple choice questions (45
marks in total)
Part B 2 short answer questions (10
short
marks in total)
Part C 2 calculations questions (10
marks in total)
EVERYTHING from week 1 to 11
Part
Tutors and lecturers consultation hours
will be posted up on WebCT
You are a corporate treasurer and you
need to hedge your borrowing cost in
December of this year. You should
1. Short a bank bill December futures contract
2. Buy a put on a December at the money bank
bill contract
3. Enter into FRA whereby the treasurer locks in a
borrowing rate
4. Any of the above
5. Either (1) or (3)
The answer is 4
1
6/1/2010
The
final settlement price in a FRA is based
on the:
Suppose
you take out a short position on
bank bill futures and overnight the interest
rates have increased. What would expect to
happen?
Underlying physical
Futures contract
The difference between the FRA contract agreed
diff
th FRA
interest rate and the rate on the settlement rate
4. Difference between the interest rate of the FRA
start date and the rate on settlement date
5. Difference between the FRA end value and the
implied interest rate on the underlying futures
contract
1.
2.
3.
The answer is 3
Under
which situation would you expect a
domestic currency to appreciate?
1.
2.
3.
4.
5.
Real rates of return in the domestic economy are
higher on a comparative basis
The domestic economy is experiencing a
relatively weaker GDP growth rate on a
GDP
comparative basis
The domestic economy is experiencing an
abnormally high inflation rate on a comparative
basis
Both 1 and 3
None of the above
The answer is 1
The
difference between the futures and
FRAs is
1.
1.
2.
3.
4.
5.
of the following is a form of
government intervention influencing the
FX market
1. Tariffs
2. Quotas
3. Embargoes
4. RBA buys/sell the Australian Dollar
5. All of the above
The answer is 5
The
_____value of a bond is also called its
par value. Bonds with a current price
greater than their par value sells at ____,
while bonds with a current price less
than their par value sell at _______.
are not
3. Futures are traded on an Exchange and FRAs
1.
2.
3.
4.
are over the counter
4. FRAs have counter party risk
5. All of the above
The answer is 5
The answer is 3
Which
1. Futures are more liquid
2. Futures are standardised contracts and FRAs
You will receive a margin call to add more cash to
your margin account
You should close out your position before the end
of the day so you will miss having to pay the in
crease in margin
Your account will have increased value
Both 1 and 2 are correct
None are correct
Premium; face value; a discount
Discount; a premium; face value
Face; a premium; a discount
Premium; a reduction; a discount
The answer is 3
2
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A $1000 face value bond with coupon
rate of 8% paid annually has five years to
maturity. If bonds of similar risk are
currently earning 6%, what is the current
price of the bond?
1.
2.
3.
4.
$920.15
$1000
$1084.25
None of the above
When a change in monetary policy is
implemented, the initial effect on interest
rates is, generally, the:
1. Income effect
2. Liquidity effect
3. Expected inflation effect
4. Wealth effect
Under
the loanable funds approach to
explaining and forecasting interest rates,
the concept of dishoarding is of introduced.
Which the following statements regarding
dishoarding is correct?
dishoarding
Dishoarding will occur as interest rates rise.
Dishoarding will occur as interest rates fall
Dishoarding will change the slope of the demand
curve
4. Dishoarding is caused by government budget
deficit
The
term structure of interest rates is
generally defined with respect to yields
on which securities?
1. Commercial paper
1.
2.
3.
The answer is 1
Using
the expectations theory of term
structure, a positively sloped yield curve
indicates that investors expect:
1. Falling long term interest rates
2. Rising long term interest rates
3. Short term interest rates to be lower in the
near future
4. Short term interest rates to be higher in the
near future
The answer is 2
The answer is 3
The answer is 4
2. Corporate bonds
3. Government securities
4. State securities
The answer is 3
An
importer will be required to purchase
USD in approximately six months to pay for
a consignment of goods. The company is
concerned that the AUD may depreciate
before the due date and therefore decides
th
to enter into a forward exchange contract to
protect its position. The company receives
the following quote: the aussie is fifty-eight
forty-five to fifty three, sixty-two to sixty six
Calculate the forward exchange rate
3
6/1/2010
1. AUD/USD0.5783-87
2. AUD/USD0.5907-19
A futures contract is
1. An agreement that specifies the delivery of a
commodity or financial security at a predetermined
future date, with a price to be negotiated at the time
of delivery
2. An agreement that specifies the delivery of a
commodity or financial security at a predetermined
di
fi
future date, with a currently agreed on price
3. An agreement that specifies the delivery of a
commodity or financial security at a currently agreed
on price, with a delivery date to be negotiated later
4. An agreement that specifies the delivery of a
commodity or financial security at a predetermined
future date, with a price and delivery to be
negotiated later
3. AUD/USD0.5911-15
4. AUD/USD0.6465-13
The answer is 2
Arbitrageurs
are mainly interested in
The
maximum loss a buyer of a share call
option can undergo is equal to
1. Reducing their exposure to risk of price
changes
1. The share price minus the value of the call
2. Attempting to make a profit by taking
advantage of price differentials between
different markets
3. Increasing market liquidity
4. Reducing the spread between the bid and ask
prices on bonds
2. The strike price minus the share price
3. The call premium
4. The share price
The answer is 3
The answer is 2
An
investor purchases a call option at a
premium of $1.25 with an exercise price of
$7.50 within three months. The holder of the
option will
Be in-the money if the market price of the share
reaches $6.25
2. Only exercise the option if the current market
price reaches $8.75 or above
3. Exercise the option at any price above $7.50, if
necessary
4. Breakeven at a market price of $7.50 and will
exercise the option
1.
The answer is 2
The answer is 3
Which of the following variables affect the value
of options?
I.
Level of interest rates
II. Time to maturity of the option
III. Share price volatility
IV. Dividend yield on the underlying share
1.
2.
3.
4.
I and IV only
II and III only
I, II and IV only
I, II, III and IV
The answer is 4
4