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Derivatives Basic 1

Question 1 - 95808
The offer rate on U.S. dollar (USD) denominated loans between large banks in London is called:
A)
B)
C)

Eurobor.
the Exchequer rate.
London Interbank Offered Rate (LIBOR).

Question 2 - 95432
Which statement best reflects the risk exposure of a put writer?
A)
B)
C)

No risk.
Unlimited risk.
Limited risk.

Question 3 - 95282
All of the following are characteristics of futures contracts EXCEPT:
A)
B)
C)

they trade in a dealer (over the counter) market.


they are liquid.
the contract size is standardized.

Question 4 - 95731
Which of the following is a common criticism of derivatives?
A)
B)
C)

Derivatives are too illiquid.


Derivatives are likened to gambling.
Fees for derivatives transactions are relatively high.

Question 5 - 95613
The lower bound on European call option prices can be adjusted for cash flows of the underlying
asset by:
A) adding the present value of the expected dividend payments to the current asset price.
B) subtracting the present value of the expected dividend payments from the current asset price.
C) subtracting the present value of the expected dividend payments from the exercise price.

Question 6 - 95343
In commodity trading, the exchange removes any daily losses from a traders account and adds any
gains to the traders account. This process is known as:
A)
B)
C)

marking to market.
initial margin.
variation margin.

Question 7 - 94982
The initiation of a futures position:
A) is done through a bank or other large financial institution acting as a dealer.
B) is at a price negotiated between the buyer and seller.
C) requires both a buyer and a seller.

Question 8 - 94992
Which of the following statements regarding margin in futures accounts is NOT correct?
A)
B)
C)

With futures margin, there is no loan of funds.


Margin is usually 10% of the contract value for futures contracts.
Margin must be deposited before a trade can be made.

Question 9 - 95467
George Mote owns stock in IBM currently valued at $112 per share. Mote writes a call option on
IBM with an exercise price of $120. The call option is sold for $1.80. At expiration, the price of IBM
is $115. What is Motes profit (or loss) from his covered call strategy? Mote:
A)
B)
C)

gained $3.00.
gained $4.80.
lost $3.20.

Question 10 - 95007
Which of the following statements regarding both futures contracts and forward contracts is least
accurate?
A) They carry counterparty risk.
B) They are priced to have zero value at the initiation of the contract.
C) For deliverable contracts, the short must deliver the underlying asset at a future date.

Question 11 - 95701
A swap in which one party pays a fixed rate, one party pays a floating rate, and only a net payment
is made on the settlement dates is referred to as a:
A)
B)
C)

straight swap.
net swap.
plain vanilla swap.

Question 12 - 95417
The owner, of an interest-rate cap will:
A) be required to make a payment if the market rate exceeds the cap rate.
B) receive a payment if the market rate is less than the cap rate.
C) receive a payment if the market rate exceeds the cap rate.

Question 13 - 95497
Which of the following statements about swaps is least accurate?
A) The notional principal is swapped at the beginning and end of a currency swap.
B) Motivations to engage in swaps include reducing transaction costs and maintaining privacy.
C) The notional principal is swapped at the beginning of an interest rate swap.

Question 14 - 95313
An option is settled in cash, with nothing delivered. The long payoff is the difference between the
security value and the strike price, multiplied by a contract multiplier. The option is a(n):
A)
B)
C)

index option.
commodity option.
futures option.

Question 15 - 95614
A call option has a strike price of $120, and the stock price is $105 at expiration. The expiration day
value of the call option is:
A)
B)
C)

Question 16 - 95329

$0.
$105.
$15.

A trader has a long position in a wheat contract.

The initial margin is $5,000.

The maintenance margin is $3,750.

There are 5,000 bushels in each wheat contract.

On July 10, the price is $2.00 per bushel.

What is the price at which the trader will receive a maintenance margin call?
A)
B)
C)

$2.25.
$1.75.
$1.90.

Question 17 - 95645
Which of the following is most likely an exchange-traded derivative?
A)
B)
C)

Bond option.
Equity index futures contract.
Currency forward contract.

Question 18 - 95587
Which of the following statements about a currency swap is CORRECT?
A) Payments are netted at each settlement date.
B) If one party pays a fixed rate of interest, the other party must pay a floating rate.
C) Changes in exchange rates do not affect the swap payments.

Question 19 - 95393
For two European call options that differ only in time to expiration, the strongest statement we can
make is that:
A) no relation can be established between the values of the two calls prior to expiration of the first.
B) the longer-term option must be worth more than the shorter-term option.
C) the longer-term option must be worth at least as much as the shorter-term option.

Question 20 - 95796
All of the following are typically end users of forward contracts EXCEPT:

A)
B)
C)

non-profit institutions.
governmental units.
a forwards dealer.

Question 21 - 95529
An investor buys a call option that has an option premium of $5 and a strike price of $22.50. The
current market price of the stock is $25.75. At expiration, the value of the stock is $23.00. The net
profit/loss of the call position is closest to:
A)
B)
C)

$4.50.
-$5.00.
-$4.50.

Question 22 - 95285
Standardized futures contracts are an aid to increased market liquidity because:
uniformity of the contract terms broadens the market for the futures by appealing to a greater
number of traders.
B) standardization of the futures contract stabilizes the market price of the underlying commodity.
C) standardization results in less trading activity.
A)

Question 23 - 95554
An options intrinsic value is equal to the amount the option is:
A) in the money, and the time value is the intrinsic value minus the market value.
B) out of the money, and the time value is the market value minus the intrinsic value.
C) in the money, and the time value is the market value minus the intrinsic value.

Question 24 - 95505
A forward rate agreement (FRA):
A) can be used to hedge the interest rate exposure of a floating-rate loan.
B) is settled by making a loan at the contract rate.
C) is risk-free when based on the Treasury bill rate.

Question 25 - 122504
An issuer of floating rate debt can create an interest rate collar by buying:
A)
B)

an interest rate floor and selling an interest rate cap.


an interest rate cap and selling an interest rate floor.

C)

both an interest rate cap and an interest rate floor.

Question 26 - 95374
Which of the following statements about uncovered call options is least accurate?
The most the writer can make is the premium plus the difference between the exercise price (X)
and the stock price (S).
B) The loss potential to the writer is unlimited.
C) The profit potential to the holder is unlimited.
A)

Question 27 - 95402
Which of the following statements regarding an option prior to expiration is CORRECT? The
maximum value of:
A) a European put is equal to the maximum value of an American put.
B) an American call is less than the maximum value of a European call.
C) a European put is less than the maximum value of an American put.

Question 28 - 138394
A standardized and exchange-traded agreement to buy or sell a particular asset on a specific date
is best described as a:
A)
B)
C)

forward contract.
swap.
futures contract.

Question 29 - 95522
Suppose the price of a share of Stock A is $100. A European call option that matures one month
from now has a premium of $8, and an exercise price of $100. Ignoring commissions and the time
value of money, the holder of the call option will earn a profit if the price of the share one month
from now:
A)
B)
C)

increases to $110.
decreases to $90.
increases to $106.

Question 30 - 95606
Consider a U.S. commercial bank that wishes to make a two-year, fixed-rate loan in Australia
denominated in Australian dollars. The U.S. bank will fund the loan by issuing two-year CDs in the
U.S. Why would the U.S. bank wish to enter into a currency swap? The bank faces the risk that:

A)
B)
C)

the Australian dollar increases in value against the U.S. dollar.


interest rates in Australia decline.
the Australian dollar decreases in value against the U.S. dollar.

Question 31 - 95455
Consider a call option expiring in 60 days on a non-dividend-paying stock trading at 53 when the
risk-free rate is 5%. The lower bound for a call option with an exercise price of 50 is:
A)
B)
C)

$0.
$3.40.
$3.00.

Question 32 - 95716
A futures contract is least likely to be:
A)
B)
C)

regulated.
illiquid.
standardized.

Question 33 - 95082
Consider a forward rate agreement (FRA) that expires/settles in 90 days. The agreement is based
on the 180-day LIBOR. The long position agrees to borrow $10,000,000 from the short position (i.e.
the dealer). The dealer quotes this instrument at 6 percent. Today, the 90-day LIBOR is 5.5 percent.
If the 180-day LIBOR in 90 days is quoted at 5 percent, compute the amount of the cash settlement
payment made or received by the borrower at expiration. The borrower will:
A)
B)
C)

receive a payment of $48,543.


make a payment of $48,780.
make a payment of $48,543.

Question 34 - 143198
An American option is:
A)
B)
C)

exercisable at any time up to its expiration date.


exercised only at expiration.
an option on a U.S. stock or bond.

Question 35 - 95513
Consider a call option expiring in 110 days on a non-dividend-paying stock trading at 27 when the
risk-free rate is 6%. The lower bound for a call option with an exercise price of 25 is:

A)
B)
C)

$2.44.
$2.00.
$1.97.

Question 36 - 95602
123, Inc. has entered into a "plain-vanilla" interest rate swap on $10,000,000 notional principal. 123
company receives a fixed rate of 6.5% on payments that occur at monthly intervals. Platteville
Investments, a swap broker, negotiates with another firm, PPS, to take the pay-fixed side of the
swap. The floating rate payment is based on LIBOR (currently at 4.8%). At the time of the next
payment (due in exactly one month),123, Inc. will:
A)
B)
C)

receive net payments of $42,500.


receive net payments of $14,167.
pay the dealer net payments of $14,167.

Question 37 - 95403
The following value diagram illustrates a:

A)
B)
C)

long put option.


short put option.
long call option.

Question 38 - 94983
Which of the following statements regarding a futures trade of a deliverable contract is NOT
correct?
A) The long is obligated to purchase the asset.
B) The price is determined by open outcry.
C) Equilibrium futures price is known only at the end of the trading day.

Question 39 - 95803
An equity forward contract may be on all of the following assets EXCEPT a(n):
A)
B)
C)

specific portfolio of five stocks.


index.
bond.

Question 40 - 95795
Which of the following statements regarding forward contract dealers is NOT correct?
A) Forward contract dealers are often banks.
B) Dealers offer long and short forward contracts at different prices.
C) Dealers are compensated through up-front payments by the parties to forward contracts.

Question 41 - 95422
Consider a long position in a LIBOR-based interest rate call option with a notional amount of
$1,000,000 and a strike rate of 4%. If at expiration LIBOR is less than 4%, the call option buyer
receives:
A)
B)
C)

$0.
$1,000,000 (4% LIBOR).
$1,000,000 (LIBOR 4%).

Question 42 - 95279
The clearinghouse, in U.S. futures markets, does NOT:
A)
B)
C)

guarantee performance of futures contract obligations.


act as a counterparty in futures contracts.
choose which assets will have futures contracts.

Question 43 - 94995
Initial margin deposits for futures accounts are:
A)
B)
C)

set by the Federal Reserve for U.S. markets.


based on price volatility.
typically 50% of the purchase price.

Question 44 - 95065

An agreement that requires the parties to exchange a certain amount of Yen for a certain amount of
Euros on a specific date in the future is called a(n):
A)
B)
C)

exchange rate agreement.


foreign exchange future.
currency forward contract.

Question 45 - 95475
When calculating the settlement payment on a long position in a London Interbank Offered Rate
(LIBOR)-based forward rate agreement, the denominator is best described as:
A) a discount factor based on the contract LIBOR rate.
B) a discount factor based on LIBOR at settlement.
the interest differential between a loan made at the contract rate and one made at the market
C)
rate at contract expiration.

Question 46 - 95394
For a European call option X=25 and a European call option X=30 on the same stock with the same
time to expiration, the strongest statement we can make is the:
A)
B)
C)

25 call is worth at least as much as the 30 call.


25 call is worth more than the 30 call.
30 call is worth at least as much as the 25 call.

Question 47 - 95579
Consider a swap with a notional principal of $120 million.

Given the above diagrams, which of the following statements is CORRECT? At the end of 360
days:
A)
B)
C)

A pays B $0.6 million.


A pays B $13.2 million and B pays A $12 million.
A pays B $1.2 million.

Question 48 - 95387
The least likely way to terminate a swap agreement prior to expiration is to:
A)
B)
C)

make/receive a payment to/from the original counterparty.


sell the swap.
exercise a swaption.

Question 49 - 95490
The short in a forward contract:
A) is obligated to deliver the asset upon expiration of the contract.
B) has the right to deliver the asset upon expiration of the contract.
C) is obligated to deliver the asset anytime prior to expiration of the contract.

Question 50 - 95562
In a plain vanilla interest rate swap:
A) payments equal to the notional principal amount are exchanged at the initiation of the swap.
one party pays a floating rate and the other pays a fixed rate, both based on the notional
B)
amount.
C) each party pays a fixed rate of interest on a notional amount.

Question 51 - 95271

The money added to a margin account to bring the account back up to the required level is known
as the:
A)
B)
C)

daily settlement.
maintenance margin.
variation margin.

Question 52 - 95479
Al Steadman receives a premium of $3.80 for shorting a put option with a strike price of $64. If the
stock price at expiration is $84, Steadmans profit or loss from the options position is:
A)
B)
C)

$3.80.
$23.80.
$16.20.

Question 53 - 95804
If 60-day London Interbank Offered Rate (LIBOR) is 6 percent, the interest on a 60-day LIBORbased Eurodollar deposit of $990,000 is:
A)
B)
C)

$10,000.
$9,900.
$59,400.

Question 54 - 95775
Which of the following statements regarding Eurodollar time deposits is NOT correct?
A) USD denominated deposits in large banks in Tokyo are Eurodollar accounts.
B) U.S. dollar (USD) denominated deposits at large banks in London are Eurodollar accounts.
C) Euro denominated deposits at large banks in the U.S. are Eurodollar accounts.

Question 55 - 95566
A U.S. bank enters into a plain vanilla currency swap with a German bank. The swap has a notional
principal of US$15m (Euro 15.170m). At each settlement date, the U.S. bank pays a fixed rate of
6.5 percent on the Euros received, and a German bank pays a variable rate equal to LIBOR+2
percent on the U.S. dollars received. Given the following information, what payment is made to
whom at the end of year 2?

U.S. bank pays German bank pays


A)
Euro 986,050
US$975,000
B)
US$975,000
Euro 986,050
C)
Euro 986,050
US$1,275,000

Question 56 - 95010
Which of the following statements about futures margin is least accurate?
The initial margin on a contract approximately equals the maximum daily price fluctuation of the
contract.
If the margin account balance falls below the maintenance margin level, the trader must bring
B)
the account back up to the initial margin level.
C) Initial margin must be posted to a futures account within three days after the first trade.
A)

Question 57 - 95406
Which of the following statements about put options is least accurate? The most the:
A)
B)
C)

writer can gain is the put premium.


buyer can gain is unlimited.
writer can lose is the strike price less the premium.

Question 58 - 95367
A call option that is in the money:
A)
B)
C)

has an exercise price greater than the market price of the asset.
has a value greater than its purchase price.
has an exercise price less than the market price of the asset.

Question 59 - 95493
The party to a forward contract that is obligated to purchase the asset is called the:
A)

short.

B)
C)

receiver.
long.

Question 60 - 95320
Exchange-traded options are NOT:
A)
B)
C)

backed by the Options Clearing Corporation.


standardized as to expirations and contract size.
issued by dealers.

Question 61 - 95361
All of the following are ways to exit a swap contract EXCEPT:
A)
B)
C)

entering an offsetting swap with the original counterparty.


selling a swaption.
making a cash payment to the original counterparty.

Question 62 - 95604
Jasper Quartermaine is interested in using the options market to create insurance against a
severe drop in the value of a stock portfolio that he owns. How could he best accomplish this goal
and what is this type of strategy called?
Type of option Strategy
A)
buy put options protective put
write call
B)
protective put
options
write call
C)
covered call
options

Question 63 - 95770
Eurodollar time deposits are:
A)
B)
C)

priced at a discount.
denominated in U.S. dollars (USD).
actively traded in the secondary market.

Question 64 - 138395
An agreement that gives the holder the right, but not the obligation, to sell an asset at a specified
price on a specific future date is a:

A)
B)
C)

put option.
call option.
swap.

Question 65 - 95448
A non-dividend-paying stock is trading at 62 when the risk-free rate is 5%. The minimum values for
6-month American and European calls on the stock with a strike price of 50 are closest to:
American call European call
A)
$13.20
$11.75
B)
$13.20
$13.20
C)
$11.75
$11.75

Question 66 - 95427
Which of the following is NOT a likely motivation today for entering into a swap agreement?
A)
B)
C)

Maintain privacy.
Exploit perceived market inefficiencies.
Avoid costly regulation.

Question 67 - 95451
The term notional principal refers to:
A)
B)
C)

the period of time involved.


the amount swapped.
the cash interest payment.

Question 68 - 95728
One reason that criticism has been leveled at derivatives and derivatives markets is that:
A) derivatives have too much default risk.
B) derivatives expire.
C) they are complex instruments and sometimes hard to understand.

Question 69 - 95782
An investor would exercise a put option when the:
A)
B)

price of the stock is equal to the strike price.


price of the stock is below the strike price.

C)

price of the stock is above the strike price.

Question 70 - 95789
An investor can exit a forward position prior to contract expiration by all of the following methods
EXCEPT:
A) exercising the early delivery option.
making a cash payment or accepting a cash payment by agreement with the original
B)
counterparty.
C) entering into an offsetting contract with the original counterparty.

Question 71 - 95342
Closing out a futures position prior to expiration:
A) can be done by entering into an offsetting trade at the current futures price.
B) can only be done by the long.
C) removes price risk but not necessarily counterparty risk.

Question 72 - 95494
A 60-day $10 million forward rate agreement (FRA) on 90-day London Interbank Offered Rate
(LIBOR) (a 2X5 FRA) is priced at 4%. If 90-day LIBOR at the expiration date is 4.1%, the long:
A)
B)
C)

receives $2,500.00.
receives $2,474.63.
pays $2,474.63.

Question 73 - 95496
Some forward contracts are termed cash settlement contracts. This means:
at contract expiration, the long can buy the asset from the short or pay the difference between
the market price of the asset and the contract price.
B) at settlement, the long purchases the asset from the short for cash.
either the long or the short in the forward contract will make a cash payment at contract
C)
expiration and the asset is not delivered.
A)

Question 74 - 95066
A currency forward contract:
A) can be a deliverable contract.
B) requires a payment at settlement based on London Interbank Offered Rate.

C) is priced using the future interest rate on a foreign currency.

Question 75 - 95410
Swap contracts typically:
A)
B)
C)

cover a single payment.


do not require a payment from either party at initiation.
are standardized contracts.

Question 76 - 95449
Which of the following regarding a plain vanilla interest rate swap is most accurate?
A)
B)
C)

The notional principal is swapped.


Only the net interest payments are made.
The notional principal is returned at the end of the swap.

Question 77 - 95005
Which of the following statements regarding futures and forward contracts is least accurate?
A) Futures contracts are highly standardized.
B) Both forward contracts and futures contracts trade on organized exchanges.
Forwards require no cash transactions until the delivery date, while futures require a margin
C)
deposit when the position is opened.

Question 78 - 95639
Which of the following statements regarding a forward commitment is NOT correct? A forward
commitment:
A)
B)
C)

is a contractual promise.
is not legally binding.
can involve a stock index.

Question 79 - 95322
Futures have greater market liquidity than forward contracts, because futures are:
A) developed with specific characteristics to meet the needs of the buyer.
B) standardized contracts.
C) sold only for widely traded commodities, unlike forwards.

Question 80 - 95373
A covered call position is:
A) the simultaneous purchase of the call and the underlying asset.
B) the purchase of a share of stock with a simultaneous sale of a put on that stock.
C) the purchase of a share of stock with a simultaneous sale of a call on that stock.

Question 81 - 95565
Consider a fixed-for-floating interest rate swap based on 180-day LIBOR with a notional principal of
$100 million.

Given the above diagrams, at the end of year 3:


A)
B)
C)

A pays B $1.25 million.


A pays B $1 million.
A pays B $2.5 million.

Question 82 - 95641
Typically, forward commitments are made with respect to all the following EXCEPT:
A)
B)

inflation.
equities.

C)

bonds.

Question 83 - 95294
All of the following are methods to close out a futures position EXCEPT:
A)
B)
C)

delivery of the underlying commodity.


allowing the contract to expire without taking action.
through an exchange for physicals with another trader.

Question 84 - 95508
The process of arbitrage does all of the following EXCEPT:
A)
B)
C)

insure that risk-adjusted expected returns are equal.


promote pricing efficiency.
produce riskless profits.

Question 85 - 95466
In October, James Knight owned stock in Valerio, Inc., that was valued at $45 per share. At that
time, Knight sold a call option on Valerio with an exercise price of $60 for $1.45. In December, at
expiration, the stock is trading at $32. What is Knights profit (or loss) from his covered call
strategy? Knight:
A)
B)
C)

lost $11.55.
gained $11.55.
gained $1.45.

Question 86 - 95567
Consider a currency swap in which Party A pays 180-day London Interbank Offered Rate on
$1,000,000 and Party B pays the Japanese yen riskless rate on 130,000,000 yen. Which of the
following statements regarding the terms required at the initiation of the swap is CORRECT?
A) An exchange of principal amounts is not required at the initiation of the swap.
B) Party A must pay 130,000,000 yen and receive $1,000,000.
C) Party A must pay $1,000,000 and receive 130,000,000 yen.

Question 87 - 95354
Which of the following statements about put and call options at expiration is least accurate?
Put
Call
A) The maximum loss to a writer is The maximum gain to the buyer

the exercise price less the


premium.
The maximum gain to the buyer
B)
is unlimited.
The maximum gain to the buyer
C) is limited to the exercise price
less the premium.

is unlimited.
The maximum loss to the writer
is the premium.
The maximum gain to the buyer
is unlimited.

Question 88 - 95307
At the Chicago Board of Trade, futures on foreign currencies have a contract size fixed in:
A) dollars and are priced in dollars per foreign currency unit.
B) foreign currency units and are priced in dollars per foreign currency unit.
C) dollars and are priced in foreign currency units per dollar.

Question 89 - 95378
An offsetting swap is a swap that:
A)
B)
C)

reduces the credit risk of an earlier swap.


reduces the principal amount of a swap.
is opposite to an existing swap in cash flows.

Question 90 - 95798
Which of the following is NOT a method of terminating a forward contract prior to expiration?
A) Exercise a swaption.
B) Make an agreed upon payment to the counterparty.
C) Enter into an offsetting forward contract with the original counterparty.

Question 91 - 95357
Consider a put option on Deter, Inc., with an exercise price of $45. The current stock price of Deter
is $52. What is the intrinsic value of the put option, and is the put option at-the-money or out-of-themoney?
Intrinsic Value
A)
$7
B)

$0

C)

$7

Moneyness
At-the-money
Out-of-themoney
Out-of-themoney

Question 92 - 95297
Which method is NOT an appropriate way to close out a futures contract?
A)
B)
C)

Default.
Reverse trade.
Delivery.

Question 93 - 95360
Most deliverable futures contracts are settled by:
A)
B)
C)

delivery of the asset at contract expiration.


a cash payment at expiration.
an offsetting trade.

Question 94 - 95697
Which of the following statements about moneyness is most accurate? When the stock price is:
A)
B)
C)

above the strike price, a put option is in-the-money.


above the strike price, a put option is out-of-the-money.
below the strike price, a call option is in-the-money.

Question 95 - 119463
Derivatives are often criticized by investors with limited knowledge of complex financial securities. A
common criticism of derivatives is that they:
A)
B)
C)

increase investor transactions costs.


can be likened to gambling.
shift risk among market participants.

Question 96 - 95020
Madison Bailey recently purchased a futures contract. The transaction did NOT:
A)
B)
C)

use a structured contract.


include a guaranty by a clearinghouse.
take place through a private party.

Question 97 - 95358
An offsetting trade is used to:

A) fully hedge a risk arising in the normal course of business activity.


B) close out a futures position prior to expiration.
C) partially hedge the interest rate risk of a bond position.

Question 98 - 95722
Which of the following statements about arbitrage opportunities is CORRECT?
Pricing errors in securities are instantaneously corrected by the first arbitrageur to recognize
them.
B) Engaging in arbitrage requires a large amount of capital for the investment.
C) When an opportunity exists to profit from arbitrage, it usually lasts for several trading days.
A)

Question 99 - 95483
Which of the following best describes the intrinsic value of an option? The intrinsic value is:
A)
B)
C)

highest if an option is at the money.


its economic value if it is exercised immediately.
its economic value if it is exercised at maturity.

Question 100 - 95332


Which of the following descriptions of how option payoffs are determined is most accurate?
Payoffs on futures options can be determined without knowing the spot price of the underlying
commodity.
The long position in an interest rate call option receives cash at expiration equal to Max[0,
B)
(reference rate-strike rate)] x notional principal amount.
An equity call option holder receives cash in the amount by which the exercise price is greater
C)
than the strike price.
A)

Question 101 - 95473


Parties agreeing to swap cash flows are:
A)
B)
C)

swap facilitators.
agents.
counterparties.

Question 102 - 95034


Which of the following statements about futures and forwards is NOT correct?
A) Futures contracts are highly structured; forward contracts are unique to each transaction.

B) An individual could sell an asset in the future using either a future or a forward contract.
C) The buyer of a forward posts a margin directly with the seller.

Question 103 - 95021


Which of the following statements about forward contracts and futures contracts is NOT correct?
Forwards:
A)
B)
C)

are private contracts, unlike futures.


are unique contracts, unlike futures.
have no default risk, unlike futures.

Question 104 - 95719


A futures contract is least likely:
A)
B)
C)

a forward contract.
exchange-traded.
an equity security.

Question 105 - 95797


Euribor is:
A)
B)
C)

published by the European Central Bank.


the same as EuroLIBOR.
the rate on U.S. dollar deposits in continental Europe.

Question 106 - 95476


Linda Reynolds pays $2.45 to buy a call option with a strike price of $42. The stock price at which
Reynolds earns $3.00 from her call option position is:
A)
B)
C)

$2.45.
$42.00.
$47.45.

Question 107 - 95339


A futures account is marked to market:
A)
B)
C)

only when margin falls below the maintenance margin level.


weekly.
daily.

Question 108 - 95028


Which of the following is a difference between futures and forward contracts? Futures contracts are:
A)
B)
C)

over-the-counter instruments.
larger than forward contracts.
standardized.

Question 109 - 95425


Which of the following is a reason to use the swaps market rather than the futures market? To:
A)
B)
C)

reduce the credit risk involved with the contract.


increase the liquidity of the contract.
maintain the firm's privacy.

Question 110 - 95539


Consider a call option with a strike price of $32. If the stock price at expiration is $41, the value of
the call option is:
A)
B)
C)

$9.
$0.
$41.

Question 111 - 95643


Any rational quoted price for a financial instrument should:
A)
B)
C)

provide an opportunity for investors to make a profit.


be low enough for most investors to afford.
provide no opportunity for arbitrage.

Question 112 - 95315


Exchange-traded stock options are all of the following EXCEPT:
A)
B)
C)

backed by the options clearinghouse.


typically for 100 shares of stock.
subject to counterparty risk.

Question 113 - 95781


Which of the following statements regarding forward rate agreements (FRAs) is least accurate?

Because the cash payment will happen in the future, the forward interest rate reflects the
creditworthiness of the party which is long the FRA.
If the floating rate at contract expiration is greater than the rate specified in the FRA, the long
B)
position will receive a payment.
If the floating rate at contract expiration is less than the rate specified in the FRA, the right to
C)
lend at rates higher than market rates has a positive value.
A)

Question 114 - 95623


Compared to European put options on an asset with no cash flows, an American put option:
A)
B)
C)

will have the same minimum value.


will have a higher minimum value.
will have a lower minimum value.

Question 115 - 122505


Travis Dillard, CFA, is the equity return receiver in a monthly-pay equity swap. If the equity index
declines by 2% in a month, Dillard must pay the swap counterparty an amount of cash that is:
A)
B)
C)

equal to 2% of the notional amount of the swap.


greater than 2% of the notional amount of the swap.
less than 2% of the notional amount of the swap.

Question 116 - 95482


Jimmy Casteel pays a premium of $1.60 to buy a put option with a strike price of $145. If the stock
price at expiration is $128, Casteels profit or loss from the options position is:
A)
B)
C)

$18.40.
$1.60.
$15.40.

Question 117 - 95430


Which statement best reflects the risk exposure of an option buyer?
A)
B)
C)

Unlimited risk.
Limited risk.
No risk.

Question 118 - 95416


Using put-call parity, it can be shown that a synthetic European call can be created by a portfolio
that is:

long the stock, long the put, and short a pure discount bond that pays the exercise price at
option expiration.
long the stock, long the put, and long a pure discount bond that pays the exercise price at
B)
option expiration.
long the stock, short the put, and short a pure discount bond that pays the exercise price at
C)
option expiration.
A)

Question 119 - 95296


Which of the following statements about futures contracts on U.S. exchanges is least likely
accurate?
A) Prices of currency futures contracts are quoted as U.S. dollars per unit of the foreign currency.
If annualized 90-day LIBOR decreases from 3.64% to 3.58%, a long position in a $1 million
B)
Eurodollar futures contract loses $150.
A $100,000 Treasury bond futures contract that settles at 102-16 represents Treasury bonds
C)
worth $102,500.

Question 120 - 95552


A contract in which one party pays a fixed rate of interest on a notional amount in return for the
return on a single stock, paid quarterly for four quarters, is a(n):
A)
B)
C)

returns swap.
plain vanilla swap.
equity swap.