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MCQ Question
Hedging involves:
- 1. taking a futures position opposite to one’s cash market position
- 2. taking a futures position identical to one’s cash market position
- 3. holding only a futures market position
- 4. holding only a cash market position
- (e) none of the above
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MCQ Question
Margin requirements for customers are established by:
- 1. the Federal Reserve Board
- 2. the Commodity Futures Trading Commission
- 3. the brokerage firms, subject to exchange minimums
- 4. the Clearing Corporation
- (e) private agreement between buyer and seller
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MCQ Question
Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit possible for the speculator based on the information above is:
- 1. $1,562.50
- 2. -$1,562.50
- 3. -$1,250.00
- 4. -$625.00
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MCQ Question
Forward contracts:
- 1. contain a commitment to the owner, and are standardized
- 2. contain a commitment to the owner, and can be tailored to the desire of the owner
- 3. contain a right but not a commitment to the owner, and can be tailored to the desire of the owner
- 4. contain a right but not a commitment to the owner, and are standardized
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MCQ Question
You may receive a margin call if:
- 1) 1. you have a long (buy) futures position and prices increase
- 2) 2. you have a long (buy) futures position and prices decrease
- 3) 3. you have a short (sell) futures position and prices increase
- 4) 4. you have a short (sell) futures position and prices decrease
- 5) (e) both (b) and (c)
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MCQ Question
The primary function of the Clearing Corporation is to:
- 1) 1. prevent speculation in futures contracts
- 2) 2. ensure the integrity of the contracts traded
- 3) 3. clear every trade made at the CBOT
- 4) 4. supervise trading on the exchange floor
- 5) (e) both (b) and (c)
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MCQ Question
A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)?
- 1. $6,875,000
- 2. $7,250,000
- 3. $7,000,000
- 4. $6,500,000
- 5. none of the above
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MCQ Question
Most futures contracts are closed by
- 1. exercise
- 2. offset
- 3. default
- 4. none are correct
- 5. delivery
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MCQ Question
Options have an advantage over futures because:
- 1. They provide a more certain hedge
- 2. They are less likely to require delivery of the underlying asset
- 3. They provide a hedge without removing the opportunity to make a profit
- 4. They are likely to be cheaper because all one is buying is the right to do something
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Practice set and Exam Quiz
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MCQ Question
If your firm expects the euro to substantially depreciate, it could speculate by…euro call options or…euros forward in the forward exchange market.
- 1. selling; selling
- 2. selling; purchasing
- 3. purchasing; purchasing
- 4. purchasing; selling
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Practice set and Exam Quiz
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MCQ Question
Which of the following contract terms is not set by the futures exchange?
- 1. the price
- 2. the deliverable commodities
- 3. the dates on which delivery can occur
- 4. the size of the contract
- 5. the expiration months
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Practice set and Exam Quiz
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MCQ Question
The manager of a blue chip growth stock mutual fund is trying to fully hedge the $650 million portfolio position during the last two months of the calendar year. the current price of the S&P 500 Index futures contract is 1200. If the mutual fund has a beta of 1.24 how many contracts will be needed to hedge the fund?
- 1. 541,666
- 2. 2,686
- 3. 242,963
- 4. 1,083
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Practice set and Exam Quiz
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MCQ Question
The annualized dividend yield on the s&p 500 is 1.40%. The continuously compounded interest rate is 6.4%. if the 9-month forward price is $925.28 and the index is priced at 950.46$, what is the profit/loss from a cash and carry strategy?
- 1. 61.50 gain
- 2. 25.18 loss
- 3. 25.18 gain
- 4. 61.50 loss
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Practice set and Exam Quiz
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MCQ Question
Consider an investment in five S&P 500 Index futures contracts at a price of $924.80. the initial margin requirement is 15% and the maintenance margin is 10.0%. If the continuously compounded interest rate is 5.0% what will the futures price need to be for a margin call to occur 10 days from now? Assume no settlement within the 10 days.
- 1. ) $852.64
- 2. )$905.25
- 3. ) $898.63
- 4. )$872.79
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MCQ Question
One of the advantages of forward markets is
- 1. none are correct
- 2. the contracts are private and customized
- 3. trading is conducted in the evening over computers
- 4. performance is guaranteed by the G-30
- 5. trading is less costly and governed by more rules
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Practice set and Exam Quiz
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MCQ Question
Which of the following best describes normal contango?
- 1. none are correct
- 2. the futures price is less than the spot price
- 3. the cost of carry is negative
- 4. the expected spot price is less than the futures price
- 5. the spot price is less than the futures price
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Practice set and Exam Quiz
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MCQ Question
A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the time of maturity is $.85, what is the net amount received by the corporation if it acts rationally?
- 1. $74,000
- 2. $84,000
- 3. $75,000
- 4. $85,000
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Practice set and Exam Quiz
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MCQ Question
Margins in futures trading:
- 1. serve the same purpose as margins for common stock
- 2. limit the use of credit in buying commodities
- 3. serve as a down payment
- 4. serve as a performance bond
- (e) are required only for long positions
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Practice set and Exam Quiz
Yes! You can do Online MCQ practice of Financial Engineering question set and give online exam quiz test for Financial Engineering, so you can check your knowledge. You can get MCQ Study and Exam link from home page.
MCQ Question
Suppose there is a risk premium of $0.50. The spot price is $20 and the futures price is $22. What is the expected spot price at expiration?
- 1. $21.50
- 2. none are correct
- 3. $24.50
- 4. $22.50
- 5. $20.50
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Practice set and Exam Quiz
Yes! You can do Online MCQ practice of Financial Engineering question set and give online exam quiz test for Financial Engineering, so you can check your knowledge. You can get MCQ Study and Exam link from home page.
MCQ Question
Find the forward rate of foreign currency Y if the spot rate is $4.50, the domestic interest rate is 6 percent, the foreign interest rate is 7 percent, and the forward contract is for nine months.
- 1. $5.104
- 2. none are correct
- 3. $4.458
- 4. $4.532
- 5. $4.468
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Practice set and Exam Quiz
Yes! You can do Online MCQ practice of Financial Engineering question set and give online exam quiz test for Financial Engineering, so you can check your knowledge. You can get MCQ Study and Exam link from home page.
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