Finance Chapter 24 2 When Two Borrowers Engage Currency Swap

61.

When two borrowers engage in a currency swap, they agree to:

62.

In an interest rate swap, borrowers typically exchange fixed-rate payments in one currency for:

63.

ABC Corp. borrows $5 million at 10% from a bank and swaps this loan for a 12% yen loan. The spot exchange rate is

JPY105 = USD1. How much does ABC pay annually to the bank?

64.

Which of the following statements is correct?

65.

The term derivatives refers to:

66.

A derivatives contract:

67.

Hershey’s Chocolate is concerned about cocoa prices, which are currently $3,000 a ton. Analysts project that the cost of

cocoa purchases could vary from $2,900 to $3,100 a ton. A September call option can be purchased with a $2,950 exercise

price for $145. What is Hershey’s worst-case scenario if it purchases these options?

68.

If you buy a forward contract, you agree to buy the product:

69.

If you sell a forward contract, you agree to:

70.

One distinguishing difference between the buyer of a futures contract and the buyer of an option contract is that the futures

buyer:

71.

In general, when deciding whether one needs to buy or sell futures contracts in order to hedge, the rule could be:

72.

As time draws closer to contract expiration, futures prices can be expected to:

73.

Why are most futures contracts not settled through delivery of the product?

74.

The price for immediate delivery of a product is called the:

75.

If you enter into an interest rate swap, the company taking the opposite side is called:

76.

A gasoline distributor buys a gasoline futures contract to receive 42,000 gallons of gasoline at $2.94 per gallon. How is the

account marked to market if gasoline futures close the next day at $2.97?

77.

The seller of a pork bellies futures contract at $1.41 per pound noted that the closing price of pork bellies was $1.44 today.

What will happen to this contract, which requires delivery of 40,000 pounds of pork bellies at expiration?

78.

The typical sequence of cash flows in a futures contract is:

79.

The seller of a copper futures contract noticed that his account was marked with a $500 gain yesterday. If the standardized

contract requires delivery of 25,000 pounds of copper, what happened that day to the price of copper?

80.

Which of the following contracts is not a financial future?

81.

Which one of the following is not true of the financial futures markets?

82.

A clothes producer hedges its future cotton purchases by buying cotton futures. The futures contract provides the producer

with 50,000 pounds of cotton at a price of $0.80 per pound. By contract expiration the producer finds that cotton prices have

declined to $0.73 per pound. As a result of the futures contracts, the producer will:

83.

Which one of the following futures contract holders is speculating?

84.

The activities of speculators are necessary in the futures markets in order to:

85.

Those who invest in derivative instruments that increase rather than reduce risk are known as:

86.

Which one of the following characteristics is similar in both futures and forward contracts?

87.

A contract to buy Japanese yen three months forward at a price of ¥105/$ will:

88.

Zeta Corp wishes to obtain a loan denominated in Swiss francs but the U.S. market offers better credit terms. What should

Zeta do?

89.

Currency swaps are used to:

90.

On $10 million of loans, Firm A is paying a fixed $700,000 in interest payments while Firm B is paying LIBOR plus 50

basis points. The current LIBOR rate is 6.25 percent. Firms A and B have agreed to swap interest payments. How much will

be paid to which firm this year?

91.

Four investors buy sugar futures. Three are speculators and one is hedging. Which of the following is hedging?

92.

A firm can reduce the risk of upward movement in raw material prices by:

93.

A farmer can hedge the risk of downward movement in the price of his product by:

94.

A sensible corporate risk strategy needs answers to three of these questions. Which is the odd man out?

95.

A farmer hedged his risk by buying put options on wheat with an exercise price of $6.70 at a price of $0.14 per bushel. If the

price of wheat at the expiration of the contract is $6.70, what is the net revenue from each bushel of wheat?

96.

Which of the following strategies does not reduce risk?

97.

Which of these statements is not true?

98.

Which one of the following statements is correct?

99.

The most active trading in forward contracts is in:

100.

At the expiration of a futures contract, the futures price will be:

101.

Which one of the following is the major difference between forward and futures contracts?

Chapter 24 Test bank – Static Summary