Which of the following best describes central clearing parties
A. Help market participants to value derivative transactions
B. Must be used for all OTC derivative transactions
C. Are used for futures transactions
D. Perform a similar function to exchange clearing houses
Which of the following is true when a European currency option is valued using
forward exchange rates?
A. It is not necessary to know the domestic interest rate or the spot exchange rate
B. It is not necessary to know either the foreign or domestic interest rate
C. It is necessary to know the difference between the foreign and domestic interest rates
but not the rates themselves
D. It is not necessary to know the foreign interest rate or the spot exchange rate
Which of the following is the payoff from an average strike call option?
A. The excess of the strike price over the average stock price, if positive
B. The excess of the final stock price over the average stock price, if positive
C. The excess of the average stock price over the strike price, if positive
D. The excess of the average stock price over the final stock price, if positive
An Asian option is a term used to describe which of the following
A. An option where the payoff depends on whether a barrier is hit
B. An option where the payoff depends on the average value of a variable over a period
of time
C. An option that trades on an exchange in the Far East
D. Any option with a nonstandard payoff
The two-year zero rate is 6% and the three year zero rate is 6.5%. What is the forward
rate for the third year? All rates are continuously compounded.
A. 6.75%
B. 7.0%
C. 7.25%
D. 7.5%
Which of the following is true of a box spread?
A. It is a package consisting of a bull spread and a bear spread
B. It involves two call options and two put options
C. It has a known value at maturity
D. All of the above
Which of the following describes the way a LIBOR-in-arrears swap differs from a plain
vanilla interest rate swap?
A. Interest is paid at the beginning of the accrual period in a LIBOR-in-arrears swap
B. Interest is paid at the end of the accrual period in a LIBOR-in-arrears swap
C. No floating interest is paid until the end of the life of the swap in a LIBOR-in-arrears
swap, but fixed payments are made throughout the life of the swap
D. Neither floating nor fixed payments are made until the end of the life of the swap
The volatility of a stock is 18% per year. Which is closest to the volatility per month?
A. 1.5%
B. 3.0%
C. 5.2%
D. 6.3%
An investor has exchange-traded put options to sell 100 shares for $20. There is a $1
cash dividend. Which of the following is then the position of the investor?
A. The investor has put options to sell 100 shares for $20
B. The investor has put options to sell 100 shares for $19
C. The investor has put options to sell 105 shares for $19
D. The investor has put options to sell 105 shares for $19.05
Prior to the credit crisis that started in 2007 which of the following was used by
derivatives traders for the discount rate when derivatives were valued
A. The Treasury rate
B. The LIBOR rate
C. The repo rate
D. The overnight indexed swap rate
A hedger takes a long position in a futures contract on a commodity on November 1,
2012 to hedge an exposure on March 1, 2013. The initial futures price is $60. On
December 31, 2012 the futures price is $61. On March 1, 2013 it is $64. The contract is
closed out on March 1, 2013. What gain is recognized in the accounting year January 1
to December 31, 2013? Each contract is on 1000 units of the commodity.
A. $0
B. $1,000
C. $3,000
D. $4,000