A/an ___________contract is an agreement to for immediate exchange of funds for assets.
A) futures
B) forward
C) call option
D) spot
E) put option
A/an ___________ contract gives its owner the right to sell some specified asset.
A) futures
B) forward
C) call option
D) spot
E) put option
A _________________ is marked to market daily.
A) fixed rate loan
B) futures contract
C) spot contract
D) forward contract
E) naive hedge
A/an ___________ contract gives its owner the right to buy some specified asset.
A) futures
B) forward
C) call option
D) spot
E) put option
The seller of a put option would also be called the:
A) writer
B) futures buyer
C) "long" party
D) caller
E) option owner
Bank-Two owns a portfolio of bonds, but wants to hedge its position. Which of the following would make the most sense?
A) Buy call options on bonds
B) Buy futures contracts on bonds
C) Sell futures contracts on bonds
D) Sell put options on bonds
If we hedge our bond holdings by using a bond futures contract, there may well be _______ risk remaining, because our bond values will not be perfectly correlated with values of the bonds deliverable on the futures contract.
A) macro
B) basis risk
C) counterparty
D) micro
If you write call options on bonds, then you:
A) gain if bond prices fall
B) lose if bond prices fall
C) gain if bond prices rise
D) neither gain or lose, no matter what happens to bond prices
E) (b) and (c)
Shakhroz Investments is holding a portfolio of 20-year maturity bonds, with a current market value of $18 million. The yield to maturity on the portfolio is currently 9%. The duration of the portfolio is 8.50. If market yields should fall by one percentage point, what will happen to the bond portfolio's value?
A) increase by $1.53 million
B) decrease by $1.53 million
C) increase by $0.085 million
D) increase by $1.404 million
E) decrease by $8.295 million
A futures contract is most similar to which of the following?
A) forward contract
B) spot contract
C) call option
D) put option
E) basis contract
If an institution is protected against an adverse movement of interest rates, we would say that it:
A) has maximized profit
B) has maximized the value of its stockholders
C) has speculated optimally
D) is optimized
E) is immunized
American Bank sells Eurodollar futures contracts. Later, the Eurodollar futures price has increased. Then:
A) American experienced a loss on its futures contract.
B) American experienced a gain on its futures contract.
C) Delivery of the Eurodollars must occur immediately.
D) The Eurodollar futures price will now have to fall.
Bekhruz holds 15-year maturity bonds, with total face value of $100,000. He's concerned about interest rate risk, so he sells a bond futures contract, which requires delivery of bonds with face value of $100,000. Albert now has:
A) actually increased his interest rate risk.
B) a combined position that will surely lose money if interest rates increase.
C) engaged in a naïve hedge.
D) (a) and (b)
Swaps and forward contracts are ______________, negotiated directly by the counterparties to the agreement.
A) spot contracts
B) devoid of all default risk
C) over-the-counter contracts
D) standardized agreements offered by an exchange
Consider balance sheet positions of two banks:
(Dollar figures are in millions)
Assets
Bank A $50 in 10-yr. loans @ fixed at 9%
Bank B $50 in loans, floating @ LIBOR + 1%
Liabilities
$50 million in 3-month CDs, @ 4%
$50 million in 10-yr. notes, fixed @ 5%
Looking forward, if market interest rates are rising, we expect which of the following?
A) Interest receipts from A's loans will be increasing.
B) Interest expenses from A's CD funding will be increasing.
C) Interest receipts from B's loans will be increasing.
D) Interest expenses from B's note funding will be decreasing.
E) (b) and (c)
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