Which of the following describes what a company should do to create a range forward
contract in order to hedge foreign currency that will be paid?
A. Buy a put and sell a call on the currency with the strike price of the put higher than
that of the call
B. Buy a put and sell a call on the currency with the strike price of the put lower than
that of the call
C. Buy a call and sell a put on the currency with the strike price of the put higher than
that of the call
D. Buy a call and sell a put on the currency with the strike price of the put lower than
that of the call
Which of the following creates a bear spread?
A. Buy a low strike price call and sell a high strike price call
B. Buy a high strike price call and sell a low strike price call
C. Buy a low strike price call and sell a high strike price put
D. Buy a low strike price put and sell a high strike price call
A company enters into a short futures contract to sell 50,000 units of a commodity for
70 cents per unit. The initial margin is $4,000 and the maintenance margin is $3,000.
What is the futures price per unit above which there will be a margin call?
A. 78 cents
B. 76 cents
C. 74 cents
D. 72 cents
Which of the following is true
A. Volatilities and correlations decreased in the second half of 2008
B. Volatilities and correlations increased in the second half of 2008
C. Volatilities decreased and correlations increased in the second half of 2008
D. Volatilities increased and correlations decreased in the second half of 2008
What is the value of a European call futures option where the futures price is 50, the
strike price is 50, the risk-free rate is 5%, the volatility is 20% and the time to maturity
is three months?
A. 49.38N(0.05)-49.38N(-0.05)
B. 50N(0.05)-50N(-0.05)
C. 49.38N(0.1)-49.38N(-0.1)
D. 50N(0.1)-49.38N(-0.1)
Which entity in the United States takes primary responsibility for regulating futures
market?
A. Federal Reserve Board
B. Commodities Futures Trading Commission (CFTC)
C. Security and Exchange Commission (SEC)
D. US Treasury
It is May 1. The quoted price of a bond with a 30/360 day count and 12% per annum
coupon in the United States is 105. It has a face value of 100 and pays coupons on April
1 and October 1. What is the cash price?
A. 106.00
B. 106.02
C. 105.98
D. 106.04
Which of the following is true
A. GARCH (1,1) will always give a maximum likelihood at least as high as EWMA
B. EWMA will always give a maximum likelihood at least as high as GARCH (1,1)
C. The maximum likelihood is the same for GARCH (1,1) and EWMA
D. Sometimes A is true and sometimes B is true.
Which of the following is a use of a currency swap?
A. To exchange an investment in one currency for an investment in another currency
B. To exchange borrowing in one currency for borrowings in another currency
C. To take advantage situations where the tax rates in two countries are different
D. All of the above
An ultra T-bond futures contract is one where
A. Bonds with maturities less than 3 years can be delivered
B. Bonds with maturities less than 10 years can be delivered
C. Bonds with maturities greater than 15 years can be delivered
D. Bonds with maturities greater than 25 year can be delivered
What should the continuous dividend yield be replaced by when options on an
exchange rate are valued using the formula for an option on a stock paying a continuous
dividend yield?
A. The domestic risk-free rate
B. The foreign risk-free rate
C. The foreign risk-free rate minus the domestic risk-free rate
D. None of the above
A one-year call option on a stock with a strike price of $30 costs $3; a one-year put
option on the stock with a strike price of $30 costs $ Suppose that a trader buys two call
options and one put option. The breakeven stock price below which the trader makes a
profit is
A. $25
B. $28
C. $26
D. $20
Which of the following are true of employee stock options?
A. They are commonly valued as though they are regular American options
B. They are commonly valued as though they are regular American options, but with a
reduced life.
C. They are commonly valued as though they are regular European option
D. They are commonly valued as though they are regular European options but with a
reduced life.
Which of the following is NOT true about gamma?
A. A highly positive or highly negative value of gamma indicates that a portfolio needs
frequent rebalancing to stay delta neutral
B. The magnitude of gamma is a measure of the curvature of the portfolio value as a
function of the underlying asset price
C. A big positive value for gamma indicates that a big movement in the asset price in
either direction will lead to a loss
D. A long position in either a call or a put has a positive gamma
The compounding frequency for an interest rate defines
A. The frequency with which interest is paid
B. A unit of measurement for the interest rate
C. The relationship between the annual interest rate and the monthly interest rate
D. None of the above
A derivatives dealer has a single transaction with a company which is a long position in
a five-year option. The Black-Scholes-Merton value of the option is $6. Suppose that
the credit spread on five-year bonds issued by the company is 100 basis points. What is
the dealer’s CVA per option purchased from the counterparty?
A. $0.19
B. $1.19
C. $0.29
D. $1.29
Which of the following could be a result of “crashophobia”?
A. High volatilities for in-the-money calls
B. High volatilities for in-the-money puts
C. High volatilities for at-the-money calls
D. Low volatilities for at-the-money puts
Which of the following is NOT a reason why a short position in a stock is closed out?
A. The investor with the short position chooses to close out the position
B. The lender of the shares issues instructions to close out the position
C. The broker is no longer able to borrow shares from other clients
D. The investor does not maintain margins required on his/her margin account