47) Options on individual stocks are referred to as ________.
A) stock options
B) futures options
C) American options
D) individual options
48) Options on futures contracts are referred to as ________.
A) stock options
B) futures options
C) American options
D) individual options
49) The agency which regulates stock options is the
A) Securities and Exchange Commission.
B) Commodities Futures Trading Commission.
C) Federal Trade Commission.
D) Both A and B are true.
50) The agency which regulates futures options is the
A) Securities and Exchange Commission.
B) Commodities Futures Trading Commission.
C) Federal Trade Commission.
D) Both A and B are true.
51) An option that gives the owner the right to buy a financial instrument at the exercise price
within a specified period of time is a(n) ________.
A) call option
B) put option
C) American option
D) European option
52) An option that gives the owner the right to sell a financial instrument at the exercise price
within a specified period of time is a(n) ________.
A) call option
B) put option
C) American option
D) European option
53) A call option gives the owner the ________ to ________ the underlying security.
A) right; sell
B) obligation; sell
C) right; buy
D) obligation; buy
54) A put option gives the owner the ________ to ________ the underlying security.
A) right; sell
B) obligation; sell
C) right; buy
D) obligation; buy
55) A call option gives the seller the ________ to ________ the underlying security.
A) right; sell
B) obligation; sell
C) right; buy
D) obligation; buy
56) A put option gives the seller the ________ to ________ the underlying security.
A) right; sell
B) obligation; sell
C) right; buy
D) obligation; buy
57) If you buy an option to buy Treasury futures at 115, and at expiration the market price is 110,
A) the call will be exercised.
B) the put will be exercised.
C) the call will not be exercised.
D) the put will not be exercised.
58) If you buy an option to sell Treasury futures at 115, and at expiration the market price is 110,
A) the call will be exercised.
B) the put will be exercised.
C) the call will not be exercised.
D) the put will not be exercised.
59) If you buy an option to buy Treasury futures at 110, and at expiration the market price is 115,
A) the call will be exercised.
B) the put will be exercised.
C) the call will not be exercised.
D) the put will not be exercised.
60) If you buy an option to sell Treasury futures at 110, and at expiration the market price is 115,
A) the call will be exercised.
B) the put will be exercised.
C) the call will not be exercised.
D) the put will not be exercised.
61) The main advantage of using options on futures contracts rather than the futures contracts
themselves is that interest-rate risk is
A) controlled while preserving the possibility of gains.
B) controlled while removing the possibility of losses.
C) not controlled but the possibility of gains is preserved.
D) not controlled but the possibility of gains is lost.
62) The main reason to buy an option on a futures contract rather than the futures contract itself
is
A) to reduce transaction cost.
B) to preserve the possibility for gains.
C) to limit losses.
D) to remove the possibility for gains.
63) The main disadvantage of futures contracts as compared to options on futures contracts is
that futures
A) remove the possibility of gains.
B) increase the transactions cost.
C) are not as effective a hedge.
D) do not remove the possibility of losses.
64) All other things held constant, premiums on put options will increase when the
A) exercise price increases.
B) volatility of the underlying asset falls.
C) term to maturity increases.
D) A and C are both true.
65) All other things held constant, premiums on call options will increase when the
A) exercise price falls.
B) volatility of the underlying asset falls.
C) term to maturity decreases.
D) futures price increases.
66) All other things held constant, premiums on both put and call options will increase when the
A) exercise price increases.
B) volatility of the underlying asset increases.
C) term to maturity decreases.
D) futures price increases.
67) An increase in the volatility of the underlying asset, all other things held constant, will
________ the option premium.
A) increase
B) decrease
C) not affect
D) Not enough information is given.
68) An increase in the exercise price, all other things held constant, will ________ the premium
on call options.
A) increase
B) decrease
C) not affect
D) Not enough information is given.
69) If a bank manager wants to protect the bank against losses that would be incurred on its
portfolio of Treasury securities should interest rates rise, he could ________ options on financial
futures.
A) buy put
B) buy call
C) sell put
D) sell call
70) A financial contract that obligates one party to exchange a set of payments it owns for
another set of payments owned by another party is called a ________.
A) cross hedge
B) cross call option
C) cross put option
D) swap
71) A swap that involves the exchange of a set of payments in one currency for a set of payments
in another currency is a(n) ________.
A) interest-rate swap
B) currency swap
C) swaption
D) notional swap
72) A swap that involves the exchange of one set of interest payments for another set of interest
payments is called a(n) ________.
A) interest-rate swap
B) currency swap
C) swaption
D) notional swap
73) If Second National Bank has more rate-sensitive assets than rate-sensitive liabilities, it can
reduce interest-rate risk with a swap which requires Second National to
A) pay a fixed rate while receiving a floating rate.
B) receive a fixed rate while paying a floating rate.
C) both receive and pay a fixed rate.
D) both receive and pay a floating rate.
74) If Second National Bank has more rate-sensitive liabilities than rate-sensitive assets, it can
reduce interest-rate risk with a swap which requires Second National to
A) pay a fixed rate while receiving a floating rate.
B) receive a fixed rate while paying a floating rate.
C) both receive and pay a fixed rate.
D) both receive and pay a floating rate.