Chapter 23 Futures, Swaps, and Risk Management Answer Key
Multiple Choice Questions
1.
Which one of the following stock index futures has a multiplier of $250 times the index
value?
2.
Which one of the following stock index futures has a multiplier of $10 times the index
value?
3.
Which one of the following stock index futures has a multiplier of $100 times the index
value?
4.
Which one of the following stock index futures has a multiplier of $100 times the index
value?
5.
Which one of the following stock index futures has a multiplier of $100 times the index
value?
6.
Which one of the following stock index futures has a multiplier of 10 euros times the
index?
7.
Which one of the following stock index futures has a multiplier of 50 Hong Kong dollars
times the index?
8.
Which one of the following stock index futures has a multiplier of 25 euros times the
index?
9.
If you purchased one S&P 500 Index futures contract at a price of 1,550 and closed your
position when the index futures was 1,547, you incurred:
10.
If you took a short position in two S&P 500 futures contracts at a price of 1,510 and closed
the position when the index futures was 1,492, you incurred
11.
If a stock index futures contract is overpriced, you would exploit this situation by
12.
Foreign exchange futures markets are __________ and the foreign exchange forward
markets are __________.
13.
Suppose that the risk-free rates in the United States and in the United Kingdom are 4%
and 6%, respectively. The spot exchange rate between the dollar and the pound is
$1.60/BP. What should the futures price of the pound for a one-year contract be to prevent
arbitrage opportunities, ignoring transactions costs?
14.
Suppose that the risk-free rates in the United States and in the United Kingdom are 5%
and 4%, respectively. The spot exchange rate between the dollar and the pound is
$1.80/BP. What should the futures price of the pound for a one-year contract be to prevent
arbitrage opportunities, ignoring transactions costs?
15.
Suppose that the risk-free rates in the United States and in Japan are 5.25% and 4.5%,
respectively. The spot exchange rate between the dollar and the yen is $0.008828/yen.
What should the futures price of the yen for a one-year contract be to prevent arbitrage
opportunities, ignoring transactions costs?
16.
Let
RUS
be the annual risk free rate in the United States,
RUK
be the risk-free rate in the
United Kingdom,
F
be the futures price of $/BP for a 1-year contract, and
E
the spot
exchange rate of $/BP. Which one of the following is true?
17.
Let
RUS
be the annual risk-free rate in the United States,
RJ
be the risk free rate in Japan,
F
be the futures price of $/yen for a 1-year contract, and
E
the spot exchange rate of $/yen.
Which one of the following is true?
18.
Consider the following:
What should be the proper futures price for a 1-year contract?
19.
Consider the following:
If the futures market price is 1.63 A$/$, how could you arbitrage?
20.
Consider the following:
If the market futures price is 1.69 A$/$, how could you arbitrage?
21.
Consider the following:
Assume the current market futures price is 1.66 A$/$. You borrow 167,000 A$ and convert
the proceeds to U.S. dollars and invest them in the U.S. at the risk-free rate. You
simultaneously enter a contract to purchase 170,340 A$ at the current futures prices
(maturity of 1 year). What would be your profit (loss)?
22.
Which of the following is(are) example(s) of interest rate futures contracts?
23.
You hold a $50 million portfolio of par value bonds with a coupon rate of 10% paid annually
and 15 years to maturity. How many T-bond futures contracts do you need to hedge the
portfolio against an unanticipated change in the interest rate of 0.18%? Assume the market
interest rate is 10% and that T-bond futures contracts call for delivery of an 8% coupon
(paid annually), 20-year maturity T-bond.
24.
A swap
25.
Credit risk in the swap market
26.
Trading in stock index futures
27.
Commodity futures pricing
28.
Arbitrage proofs in futures market pricing relationships
29.
One reason swaps are desirable is that
30.
Which two indices had the lowest correlation between them during the 2008-2012 period?
31.
Which two indices had the highest correlation between them during the 2008-2012 period?