chap023+practice

chap023+practice - CHAPTER 23 Risk Management: An...

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CHAPTER 23 Risk Management: An Introduction to Financial Engineering I. DEFINITIONS HEDGING a 1. is the process of reducing a firm’s exposure to price or rate fluctuations. a. Hedging b. Volatility c. Diversification d. Value minimization e. Translation DERIVATIVE SECURITY b 2. A financial asset that represents a claim on another financial asset is called a(n) . a. initial public offering b. derivative security c. seasoned equity offering d. Eurobond e. subjugated (or junior) stock CALL OPTION b 5. An option that gives the owner the right, but not the obligation, to buy an asset is called a: a. Parity option. b. Call option. c. Put option. d. Straddle option. e. Strangle option. PUT OPTION c 6. An option that gives the owner the right, but not the obligation, to sell an asset is called a: a. Parity option. b. Call option. c. Put option. d. Straddle option. e. Strangle option. FORWARD CONTRACT a 9. A(n) contract is a legally binding agreement between two parties calling for the purchase/sale of an asset in the future at an agreed-upon price today. a. forward b. spot c. swap d. option e. floating FUTURES CONTRACT
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CHAPTER 23 e 11. A forward contract with the feature that gains and losses are realized on a daily basis, rather than at the settlement date, is called a(n) contract. a. floating b. spot c. option d. swap e. futures PUT OPTION d 16. Which of the following items obligates the writer to buy an asset at a specified price if the holder chooses to exercise? a. Call option b. Forward contract c. Futures contract d. Put option e. Swap contract CALL OPTION a 17. Which of the following items obligates the writer to sell an asset at a specified price if the holder chooses to exercise? a. Call option b. Put option c. Forward contract d. Futures contract e. Swap contract FORWARD CONTRACT c 27. The of a forward contract is obligated to delivery and pay for the contracted goods at the forward price; the of a forward contract is obligated to delivery and accept payment for the goods at the forward price. a.
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chap023+practice - CHAPTER 23 Risk Management: An...

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