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Ch7 - 1) Which of the following trading strategies are...

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Ch7 - 1) Which of the following trading strategies are...

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1) 
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Which of  the  following  trading  strategies  are  correct? I. If you expect the British pound to appreciate in value, you should short the pound. II. If you expect interest rates to rise, you should go long on interest rate futures. III. If you expect the stock market to rise, you should go long on stock - index futures. IV. If you expect the stocks in your portfolio to temporarily decline in value, you should short  stock - index futures.  A) 
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I and II only  B) 
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II and IV only  C) 
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III and IV only  D) 
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I and III only    2) 
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Assume  an  investor thinks the stock market is about to undergo a sharp retreat. Under these conditions, the investor's  best course of action would be to  A) 
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buy stock - index  futures contracts.  B) 
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short sell  stock - index futures contracts.  C) 
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use single stock  futures to sit out the market.  D) 
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use a long  hedge against the investor's existing positions. 
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3) 
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Mr.  Lecourt  sells short 200,000 euros for $240,000.  The exchange rate moves from $1.20 per euro to $1.25.  If Mr.  Lecourt covers his short at this point, he    A) 
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loses $10,000.  B) 
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gains $10,000.  C) 
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loses $12,000.  D) 
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gains $12,000.               4) 
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To hedge  a bond portfolio, an investor should use  A) 
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a foreign - currency future.  B) 
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a stock - index  future.  C) 
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a certificate of  deposit.  D) 
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an interest rate future.  5) 
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Assume a  portfolio  manager created a short interest rate hedge for his/her portfolio. Given this hedge, the manager is  A) 
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essentially  eliminating both the downside risk and the upside potential.  B) 
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eliminating the  downside risk without hampering the upside potential.  C) 
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partially  diminishing the downside risk without impairing the upside potential.  D) 
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eliminating the  downside risk and increasing the upside potential.  6) 
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Suppose  you own a  portfolio  of British securities valued at $430,000. The exchange rate is currently at $1  =  £0.57. A currency  contract on British pounds is set at 62,500 pounds. How many contracts must you purchase to protect  your portfolio from exchange rate risk?  A) 
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B) 
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C) 
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