A one-year forward contract is an agreement where
A. One side has the right to buy an asset for a certain price in one year’s time.
B. One side has the obligation to buy an asset for a certain price in one year’s time.
C. One side has the obligation to buy an asset for a certain price at some time during the
next year.
D. One side has the obligation to buy an asset for the market price in one year’s time.
Which of the following is assumed to be lognormal when a caplet is valued?
A. A future bond price
B. A future swap rate
C. A future short-term rate
D. A future long-term rate
Which of the following is true about daily exchange rate moves?
A. Four standard deviation daily moves in an exchange rate happen less frequently than
they would do if changes were normally distributed
B. Four standard deviation daily movements in an exchange rate happen more
frequently than three standard deviation moves in the exchange rate
C. The frequency of six standard deviation daily movements in an exchange rate is
about once every 100 years
D. None of the above
A company enters into a short futures contract to sell 50,000 units of a commodity for
70 cents per unit. The initial margin is $4,000 and the maintenance margin is $3,000.
What is the futures price per unit above which there will be a margin call?
A. 78 cents
B. 76 cents
C. 74 cents
D. 72 cents
A floating-for-fixed currency swap is equivalent to
A. Two interest rate swaps, one in each currency
B. A fixed-for-fixed currency swap and one interest rate swap
C. A fixed-for-fixed currency swap and two interest rate swaps, one in each currency
D. None of the above
Which of the following describes the period during which a ‘5 times 16’ contract
provides electricity?
A. From 7am to 11pm on five successive days
B. From 4pm to 8am on five successive days
C. For any 5 hours of a day on 16 successive days
D. For any 16 hours of a day in five successive days
It is May 1. The quoted price of a bond with a 30/360 day count and 12% per annum
coupon in the United States is 105. It has a face value of 100 and pays coupons on April
1 and October 1. What is the cash price?
A. 106.00
B. 106.02
C. 105.98
D. 106.04
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%
What is the same as 100 call options to buy one unit of currency A with currency B at a
strike price of 1.25?
A. 100 call options to buy one unit of currency B with currency A at a strike price of 0.8
B. 125 call options to buy one unit of currency B with currency A at a strike price of 0.8
C. 100 put options to sell one unit of currency B for currency A at a strike price of 0.8
D. 125 put options to sell one unit of currency B for currency A at a strike price of 0.8
It is May 1. The quoted price of a bond with an Actual/Actual (in period) day count and
12% per annum coupon (paid semiannually) in the United States is 105. It has a face
value of 100 and pays coupons on April 1 and October 1. What is the cash price?
A. 106.00
B. 106.02
C. 105.98
D. 106.04
Which of the following are products refined from crude oil?
A. Heating oil
B. Gasoline
C. Kerosene
D. All of the above
Which of the following describes a 3-month overnight indexed swap (OIS)?
A. A fixed rate is exchanged for the overnight rate every day for three months
B. LIBOR is exchanged for the overnight rate every day for three months
C. The arithmetic average of overnight rates is exchanged for a fixed rate at the end of
three months
D. The geometric average of overnight rates is exchanged for a fixed rate at the end of
three months
Which of the following is an implication of the mean reversion of interest rates?
A. Interest rates cannot become negative
B. When short-term interest rates are high they tend to move down
C. The term structure of interest rates tends to be upward sloping
D. When short-term interest rates are low they tend to stay low
What is a description of the trading strategy where an investor sells a 3-month call
option and buys a one-year call option, where both options have a strike price of $100
and the underlying stock price is $75?
A. Neutral Calendar Spread
B. Bullish Calendar Spread
C. Bearish Calendar Spread
D. None of the above
Which of the following describes a CAT bond?
A. Has a great deal of systematic risk
B. Has very little systematic risk
C. Has a moderate amount of systematic risk
D. Has negative systematic risk
Which of the following is true?
A. Gold producers should always hedge the price they will receive for their production
of gold over the next three years
B. Gold producers should always hedge the price they will receive for their production
of gold over the next one year
C. The hedging strategies of a gold producer should depend on whether it shareholders
want exposure to the price of gold
D. Gold producers can hedge by buying gold in the forward market
Which of the following day count conventions applies to a US Treasury bond?
A. Actual/360
B. Actual/Actual (in period)
C. 30/360
D. Actual/365
Which of the following cannot be estimated from a single binomial tree?
A. delta
B. gamma
C. theta
D. vega
Which of the following can be used to create a long position in a European put option
on a stock?
A. Buy a call option on the stock and buy the stock
B. Buy a call on the stock and short the stock
C. Sell a call option on the stock and buy the stock
D. Sell a call option on the stock and sell the stock