Clearing houses are
A. Never used in futures markets and sometimes used in OTC markets
B. Used in OTC markets, but not in futures markets
C. Always used in futures markets and sometimes used in OTC markets
D. Always used in both futures markets and OTC markets
A futures price is currently 40 cents. It is expected to move up to 44 cents or down to 34
cents in the next six months. The risk-free interest rate is 6%. What is the value of a six
month call option with a strike price of 39 cents?
A. 5.00 cents
B. 2.91 cents
C. 3.00 cents
D. 4.21 cents
In the U.S., which of the following is true about Treasury instruments
A. Their income is not subject to tax at the state level
B. Their income is not subject to tax at the federal level
C. Both A and B are true
D. They are not subject to capital gains tax at the federal level
An investor has exchange-traded put options to sell 100 shares for $20. There is 25%
stock dividend. Which of the following is the position of the investor after the stock
dividend?
A. Put options to sell 100 shares for $20
B. Put options to sell 75 shares for $25
C. Put options to sell 125 shares for $15
D. Put options to sell 125 shares for $16
The zero curve is upward sloping. Define X as the 1-year par yield, Y as the 1-year zero
rate and Z as the forward rate for the period between 1 and 1.5 year. Which of the
following is true?
A. X is less than Y which is less than Z
B. Y is less than X which is less than Z
C. X is less than Z which is less than Y
D. Z is less than Y which is less than X
A company invests $1,000 in a five-year zero-coupon bond and $4,000 in a ten-year
zero-coupon bond. What is the duration of the portfolio?
A. 6 years
B. 7 years
C. 8 years
D. 9 years
A German bank has exposure to the S&P500. Which of the following is true
A. The S&P 500 index should be always be measured in U.S. dollars when VaR is
calculated
B. The S&P 500 index should be always be measured in euros when VaR is calculated
C. Either A or B can be done
D. The S&P 500 index should be measured in euros only if the bank has not got a U.S.
subsidiary.
A trader uses a stop-loss strategy to hedge a short position in a three-month call option
with a strike price of 0.7000 on an exchange rate. The current exchange rate is 0.6950
and value of the option is 0.1. The trader covers the option when the exchange rate
reaches 0.7005 and uncovers (i.e., assumes a naked position) if the exchange rate falls
to 0.6995. Which of the following is NOT true?
A. The exchange rate trading might cost nothing so that the trader gains 0.1 for each
option sold
B. The exchange rate trading might cost considerably more than 0.1 for each option
sold so that the trader loses money
C. The present value of the gain or loss from the exchange rate trading should be about
0.1 on average for each option sold
D. The hedge works reasonably well
The domestic risk-free rate is 3%. The foreign risk-free rate is 5%. What is the
risk-neutral growth rate of the exchange rate?
A. +2%
B. -2%
C. +5%
D. +3%
Employee stock options are particularly popular with start ups because
A. They encourage employees to work hard
B. The start up cannot afford to pay high salaries
C. The risk associated with the company’s success is shared with employees.
D. All of the above
Which of the following is true for European call and put options?
A. If they have the same strike price, they have the same implied volatility
B. If they have the same time to maturity, they have the same implied volatility
C. If they have the same strike price and time to maturity, they have the same implied
volatility
D. None of the above
If the CDS spread for a regular 5-year CDS is 120 basis points, what is the CDS spread
for a 5-year binary CDS on the same underlying reference entity? Assume a recovery
rate of 40%.
A. 48 basis points
B. 72 basis points
C. 200 basis points
D. 300 basis points