Question 1

What is not considered a problem with forward transactions?

Accepted Answer

A)  the difficulty in finding partners
B)  default by one of the parties
C)  convergence
D)  one party reneges on the agreement

Question 2

Futures markets can be used to hedge which of the following?

Accepted Answer

A)  interest rate risk
B)  exchange rate risk
C)  the risks that stock prices may change
D)  All of the above are correct.

Question 3

Which of the following groups are most likely to purchase foreign exchange futures?

Accepted Answer

A)  households
B)  small businesses
C)  importers and exporters
D)  small domestic banks

Question 4

Which of the following preceded the October 1987 crash?

Accepted Answer

A)  program trading
B)  stop orders
C)  falling futures prices
D)  All of the above are correct.

Question 5

Call options give the buyer which of the following?

Accepted Answer

A)  the obligation to sell a financial asset at a strike price set today.
B)  the right to sell a financial asset at a strike price set today.
C)  the obligation to buy a financial asset at a strike price set today.
D)  the right but not the obligation to buy a financial asset at a strike price set today up to the expiration date on the contract.

Question 6

If I am to be receiving a large quantity of Japanese yen in 6 months, to hedge the risk that the exchange rate will change and eliminate my profit in dollars, I should

Accepted Answer

A)  sell a futures contract in yen.
B)  buy a futures contract in yen.
C)  buy a T-bill futures contract.
D)  only agree to accept dollars in the future.

Question 7

The responsibility of the clearinghouse is to

Accepted Answer

A)  bid up transactions.
B)  provide an area where buyers and sellers of futures can meet.
C)  enforce futures contracts.
D)  arrange trades only.

Question 8

__________ give the buyer the right, but not the obligation, to sell a standardized contract of a financial asset at a strike price determined today up to the expiration date on the contract.

Accepted Answer

A)  Put options
B)  Call options
C)  Options
D)  Options on futures

Question 9

Standardized contracts that give the buyer the right but not the obligation to buy financial assets in the future at a price set today are which of the following?

Accepted Answer

A)  financial forward agreements
B)  financial option agreements
C)  financial futures agreements
D)  financial swaps

Question 10

A performance bond is

Accepted Answer

A)  put up by both parties in a futures contract.
B)  paid only by the buyer of a futures contract to make sure she or he does not renege on the deal.
C)  collected in advance by the clearinghouse so that both parties can participate in futures agreements.
D)  Both a and c are correct.

Question 11

A disadvantage of forward agreements is that

Accepted Answer

A)  there is a possibility that one party to the agreement may default.
B)  sellers are prevented from hedging.
C)  buyers are prevented from hedging.
D)  sellers are prevented from speculating.

Question 12

For an arbitrageur, carrying costs consist of which of the following?

Accepted Answer

A)  interest costs for the use of the funds to purchase securities less the interest earned on the securities
B)  the performance bond
C)  convergence fees
D)  the margin requirements plus the performance bond

Question 13

Non-standardized contracts between two parties to trade assets at a future date and in which the terms (including the price)  of the transaction are determined today are usually referred to as

Accepted Answer

A)  forward contracts.
B)  futures contracts.
C)  options.
D)  swaps.

Question 14

Options can be used for speculation. If you believe that the spot price of T-bills is going to be much lower by next June, which of the following would be the best way to act on this belief? For simplicity, assume that the strike price and the spot price are about equal.

Accepted Answer

A)  You could sell a put option
B)  You could buy a put option.
C)  You could buy a call option.
D)  You could sell a call option.

Question 15

Which of the following is false?

Accepted Answer

A)  Agriculture futures predate financial futures.
B)  Futures agreements confer rights but no obligations.
C)  Futures agreements confer rights and obligations.
D)  Options confer rights but no obligations.

Question 16

Financial futures and options have been developed because of which of the following?

Accepted Answer

A)  increased pure competition
B)  decreased bond purchases
C)  increased price volatility in financial markets
D)  increased foreign government protectionism

Question 17

__________ are non-standardized transactions in which the terms, including price, are completed today for a transaction that will occur in the future.

Accepted Answer

A)  Forward transactions
B)  Financial futures
C)  Futures contracts
D)  Options on futures

Question 18

A spot price is the price for which of the following?

Accepted Answer

A)  prior delivery
B)  immediate delivery
C)  future delivery
D)  partial delivery

Question 19

Futures markets were first developed for which market(s) ?

Accepted Answer

A)  agriculture and commodity
B)  financial futures and options
C)  foreign exchange
D)  stock markets

Question 20

__________ occurs when the futures price is bid up or down to the spot price plus carrying costs as the expiration date draws close.

Accepted Answer

A)  Convergence
B)  Hedging
C)  Strike pricing
D)  Program trading

Exam 17: Forward, Futures, and Options Agreements

For an arbitrageur, carrying costs consist of which of the following?

Correct AnswerverifiedShow Answer

__________ are non-standardized transactions in which the terms, including price, are completed today for a transaction that will occur in the future.

Correct AnswerverifiedShow Answer

__________ give the buyer the right, but not the obligation, to sell a standardized contract of a financial asset at a strike price determined today up to the expiration date on the contract.

Correct AnswerverifiedShow Answer

Futures markets can be used to hedge which of the following?

Correct AnswerverifiedShow Answer

A spot price is the price for which of the following?

Correct AnswerverifiedShow Answer

Financial futures and options have been developed because of which of the following?

Correct AnswerverifiedShow Answer

Which of the following is false?

Correct AnswerverifiedShow Answer

Non-standardized contracts between two parties to trade assets at a future date and in which the terms (including the price) of the transaction are determined today are usually referred to as

Correct AnswerverifiedShow Answer

The responsibility of the clearinghouse is to

Correct AnswerverifiedShow Answer

If I am to be receiving a large quantity of Japanese yen in 6 months, to hedge the risk that the exchange rate will change and eliminate my profit in dollars, I should

Correct AnswerverifiedShow Answer

A disadvantage of forward agreements is that

Correct AnswerverifiedShow Answer

Standardized contracts that give the buyer the right but not the obligation to buy financial assets in the future at a price set today are which of the following?

Correct AnswerverifiedShow Answer

__________ occurs when the futures price is bid up or down to the spot price plus carrying costs as the expiration date draws close.

Correct AnswerverifiedShow Answer

Which of the following groups are most likely to purchase foreign exchange futures?

Correct AnswerverifiedShow Answer

What is not considered a problem with forward transactions?

Correct AnswerverifiedShow Answer

Options can be used for speculation. If you believe that the spot price of T-bills is going to be much lower by next June, which of the following would be the best way to act on this belief? For simplicity, assume that the strike price and the spot price are about equal.

Correct AnswerverifiedShow Answer

Futures markets were first developed for which market(s) ?

Correct AnswerverifiedShow Answer

Call options give the buyer which of the following?

Correct AnswerverifiedShow Answer

Which of the following preceded the October 1987 crash?

Correct AnswerverifiedShow Answer

A performance bond is

Correct AnswerverifiedShow Answer

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