chapter 13

chapter 13 - chapter 13 Exercise: . Main concept 1. a long...

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chapter 13 Exercise: . Main concept 1. a long contract 1. micro hedge 3. open interest 4. options 5. exercise/strike price 6. premium 7. American option 8. stock options 9. call option 10. currency swap . Multiple choice 1. The payoffs for financial derivatives are linked to a. securities that will be issued in the future. b. the volatility of interest rates. c. previously issued securities. d. government regulations specifying allowable rates of return. e. none of the above. 2. Hedging risk for a long position is accomplished by a.taking another long position. b.taking a short position. c.taking additional long and short positions in equal amounts. d.taking a neutral position. e.none of the above. 3.If a bank manager chooses to hedge his portfolio of treasury securities by selling futures contracts, he a.gives up the opportunity for gains. b.removes the chance of loss. c.increases the probability of a gain. d.both (a) and (b) are true. 4. A disadvantage of a forward contract is that a.it may be difficult to locate a counterparty. b.the forward market suffers from lack of liquidity. c.these contracts have default risk. d.all of the above. e.both (a) and (c) of the above. 5. When interest rates fall, a bank that perfectly hedges its portfolio of Treasury securities in the futures market a.suffers a loss. b.experiences a gain. c.has no change in its income. d.none of the above. 6. By selling short a futures contract of $100,000 at a price of 115 you are agreeing to deliver a.$100,000 face value securities for $115,000. b.$115,000 face value securities for $110,000. c.$100,000 face value securities for $100,000. d.$115,000 face value securities for $115,000. 7. On the expiration date of a futures contract, the price of the contract, the price of
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the contract a. always equals the purchase price of the contract. b.always equals the average price over the life of the contract. c.always equals the price of the underlying asset. d.always equals the average of the purchase price and the price of underlying asset. e.cannot be determined. 8. If you sold a short contract on financial futures you hope interest rates a.rise. b.fall. c.are stable. d.fluctuate. 9. To hedge the interest rate risk on $4 million of Treasury bonds with $100,000 futures contracts, you would need to purchase a. 4 contracts. b. 20 contracts. c. 25 contracts. d. 40 contract. e. 400 contract. 10.Which of the following features of futures contracts were not designed to increase liquidity? a. Standardized contracts. b.Traded up until maturity. c. Not tied to one specific type of bond. d. Marked to market daily. 11. The advantage of futures contracts relative to forward contracts is that futures contracts a. are standardized, making it easier to match parties, thereby increasing liquidity. b. specify that more than one bond is eligible for delivery, making it harder for
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chapter 13 - chapter 13 Exercise: . Main concept 1. a long...

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