As inventories of a commodity decline, which of the following is true?
A. The one-year futures price as a percentage of the spot price increases
B. The one-year futures price as a percentage of the spot price decreases
C. The one-year futures price as a percentage of the spot price stays the same
D. Any of the above can happen
Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively.
What is the maximum gain when a bull spread is created by trading a total of 200
options?
A. $100
B. $200
C. $300
D. $400
A trader buys a call and sells a put with the same strike price and maturity date. What is
the position equivalent to?
A. A long forward
B. A short forward
C. Buying the asset
D. None of the above
Which of the following is NOT true
A. The bonus structure at banks can lead to short-term horizons for decision making
B. Securitization involves the transfer of risk
C. The term “agency costs” describes the situation where the incentives of two parties in
a business relationship are not perfectly aligned
D. Correlations decrease in stressed market conditions
Which of the following are true for CBOE stock options?
A. There are no margin requirements
B. The initial margin and maintenance margin are determined by formulas and are equal
C. The initial margin and maintenance margin are determined by formulas and are
different
D. The maintenance margin is usually about 75% of the initial margin
In 2008 the TED spread reached a high of
A. About 150 basis points
B. About 250 basis points
C. About 450 basis points
D. About 550 basis points
A binomial tree with three-month time steps is used to value a currency option. The
domestic and foreign risk-free rates are 4% and 6% respectively. The volatility of the
exchange rate is 12%. What is the probability of an up movement?
A. 0.4435
B. 0.5267
C. 0.5565
D. 0.5771
In a fixed-for-fixed currency swap, 3% on a US dollar principal of $150 million is
received and 4% on a British pound principal of 100 million pounds is paid. The current
exchange rate is 1.55 dollar per pound. Interest rates in both countries for all maturities
are currently 5% (continuously compounded). Payments are exchanged every year. The
swap has 2.5 years left in its life. What is the value of the swap?
A. -$7.15
B. -$8.15
C. -$9.15
D. -$10.15
On March 1 a commodity’s spot price is $60 and its August futures price is $59. On July
1 the spot price is $64 and the August futures price is $650. A company entered into
futures contracts on March 1 to hedge its purchase of the commodity on July 1. It
closed out its position on July 1. What is the effective price (after taking account of
hedging) paid by the company?
A. $59.50
B. $60.50
C. $61.50
D. $63.50
Which of the following happens when the default correlation of the companies
underlying a CDO increases?
A. The value of the senior tranche and the equity tranche to the protection buyer both
increase
B. The value of the senior tranche and the equity tranche to the protection buyer both
decrease
C. The value of the senior tranche to the protection buyer decreases and the value of the
equity tranche to the protection buyer increases
D. The value of the senior tranche to the protection buyer increases and the value of the
equity tranche to the protection buyer decreases
Which of the following tends to lead to an increase in house prices?
A. An increase in interest rates
B. Regulators specifying a maximum level for the loan-to-value ratio on mortgages
C. Banks reducing the minimum FICO score that borrowers are required to have
D. An increase in foreclosures