PT Ch29

PT Ch29 - Exam Name_ MULTIPLE CHOICE. Choose the one...

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Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The major function of futures markets is to transfer price risk from ________. 1) A) speculators to hedgers. B) hedgers to conservative investors. C) hedgers to speculators. D) aggressive investors to speculators. 2) A thrift or commercial bank wants to make sure that the cost of its funds will not exceed a certain level. This can be done by ________. 2) A) buying put options on Eurodollar CD futures. B) buying Eurodollar CDs. C) buying call options on Eurodollar CD futures. D) selling put options on Eurodollar CD futures. 3) The effectiveness of a cross hedge will be determined by ________. 3) A) the relationship between the cash price of the underlying instrument and its futures price at the time when a hedge is placed and the time when it is lifted. B) the relationship between the cash price of the underlying instrument and the price of a complement to the underlying instrument. C) the relationship between the market value of the portfolio and the cash price of the instrument before the hedge is lifted. D) the relationship between the market value of the portfolio and the cash price of the instrument after hedge is placed. 4) A corporation planning to sell long - term bonds two months from now can protect itself against a rise in interest rates by selling or taking ________ in interest rate futures now. 4) A) a short position B) a long position C) a passive or neutral position D) an aggressive or active position 5) The difference between the cash price and the futures price is called the ________. 5) A) basis. B) cash - future difference. C) basis point. D) future difference. 6) Suppose that a money manager knows that bonds are maturing in the near future and expects interest rates to fall. ________ can be purchased in this situation. 6) A) Call options B) Dividend paying stocks C) Growth firms D) Put options 7) Market participants can employ interest rate futures in various ways. These include ________. 7) A) hedging against known interest rate movements. B) controlling the interest rate risk of a bond. C) speculating on the movement of risk - free rates. D) enhancing returns when futures are mispriced. 8) When a futures contract is used to hedge a position where either the portfolio or the individual financial instrument is not identical to the instrument underlying the futures, it is called ________. 8)
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PT Ch29 - Exam Name_ MULTIPLE CHOICE. Choose the one...

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