by 61) The seller of an option has the
(a) right to buy or sell the underlying asset.
(b) the obligation to buy or sell the underlying asset.
(c) ability to reduce transaction risk.
(d) right to exchange one payment stream for another.
Answer: B
62) The seller of an option is ______ to buy or sell the underlying asset while the purchaser of an option has the ______ to buy or sell the asset.
(a) obligated; right
(b) right; obligation
(c) obligated; obligation
(d) right; right
Answer: A
63) The amount paid for an option is the
(a) strike price.
(b) premium.
(c) discount.
(d) commission.
(e) yield.
Answer: B
64) An option that can be exercised at any time up to maturity is called a(n)
(a) swap.
(b) stock option.
(c) European option.
(d) American option.
Answer: D
65) An option that can only be exercised at maturity is called a(n)
(a) swap.
(b) stock option.
(c) European option.
(d) American option.
Answer: C
66) Options on individual stocks are referred to as
(a) stock options.
(b) futures options.
(c) American options.
(d) individual options.
Answer: A
67) Options on futures contracts are referred to as
(a) stock options.
(b) futures options.
(c) American options.
(d) individual options.
Answer: B
68) An option that gives the owner the right to buy a financial instrument at the exercise price within a specified period of time is a
(a) call option.
(b) put option.
(c) American option.
(d) European option.
Answer: A
69) A call option gives the owner
(a) the right to sell the underlying security.
(b) the obligation to sell the underlying security.
(c) the right to buy the underlying security.
(d) the obligation to buy the underlying security.
Answer: C
70) A call option gives the seller
(a) the right to sell the underlying security.
(b) the obligation to sell the underlying security.
(c) the right to buy the underlying security.
(d) the obligation to buy the underlying security.
Answer: B
71) An option allowing the holder to buy an asset in the future is a
(a) put option.
(b) call option.
(c) swap.
(d) premium.
(e) forward contract.
Answer: B
72) An option that gives the owner the right to sell a financial instrument at the exercise price within a specified period of time is a
(a) call option.
(b) put option.
(c) American option.
(d) European option.
Answer: B
73) A put option gives the owner
(a) the right to sell the underlying security.
(b) the obligation to sell the underlying security.
(c) the right to buy the underlying security.
(d) the obligation to buy the underlying security.
Answer: A
74) A put option gives the seller
(a) the right to sell the underlying security.
(b) the obligation to sell the underlying security.
(c) the right to buy the underlying security.
(d) the obligation to buy the underlying security.
Answer: D
75) An option allowing the owner to sell an asset at a future date is a
(a) put option.
(b) call option.
(c) swap.
(d) forward contract.
(e) futures contract.
Answer: A
76) If you buy a call option on treasury futures at 115, and at expiration the market price is 110,
(a) the call will be exercised.
(b) the put will be exercised.
(c) the call will not be exercised.
(d) the put will not be exercised.
Answer: C
77) If you buy a call option on treasury futures at 110, and at expiration the market price is 115,
(a) the call will be exercised.
(b) the put will be exercised.
(c) the call will not be exercised.
(d) the put will not be exercised.
Answer: A
78) If you buy a put option on treasury futures at 115, and at expiration the market price is 110,
(a) the call will be exercised.
(b) the put will be exercised.
(c) the call will not be exercised.
(d) the put will not be exercised.
Answer: B
79) If you buy a put option on treasury futures at 110, and at expiration the market price is 115,
(a) the call will be exercised.
(b) the put will be exercised.
(c) the call will not be exercised.
(d) the put will not be exercised.
Answer: D
80) If, for a $1000 premium, you buy a $100,000 call option on bond futures with a strike price of 110, and at the expiration date the price is 114
(a) your profit is $4000.
(b) your loss is $4000.
(c) your profit is $3000.
(d) your loss is $3000.
(e) your loss is $1000.
Answer: C
81) If, for a $1000 premium, you buy a $100,000 call option on bond futures with a strike price of 114, and at the expiration date the price is 110
(a) your profit is $4000.
(b) your loss is $4000.
(c) your profit is $3000.
(d) your loss is $3000.
(e) your loss is $1000.
Answer: E
82) If, for a $1000 premium, you buy a $100,000 put option on bond futures with a strike price of 110, and at the expiration date the price is 114
(a) your profit is $4000.
(b) your loss is $4000.
(c) your profit is $3000.
(d) your loss is $3000.
(e) your loss is $1000.
Answer: E
83) If, for a $1000 premium, you buy a $100,000 put option on bond futures with a strike price of 114, and at the expiration date the price is 110
(a) your profit is $4000.
(b) your loss is $4000.
(c) your profit is $3000.
(d) your loss is $3000.
(e) your loss is $1000.
Answer: C
84) The main advantage of using options on futures contracts rather than the futures contracts themselves is that
(a) interest rate risk is controlled while preserving the possibility of gains.
(b) interest rate risk is controlled, while removing the possibility of losses.
(c) interest rate risk is not controlled, but the possibility of gains is preserved.
(d) interest rate risk is not controlled, but the possibility of gains is lost.
Answer: A
85) The main reason to buy an option on a futures contract rather than the futures contract is
(a) to reduce transaction cost.
(b) to preserve the possibility for gains.
(c) to limit losses.
(d) remove the possibility for gains.
Answer: B
86) The main disadvantage of hedging with futures contracts as compared to options on futures contracts is that futures
(a) remove the possibility of gains.
(b) increase the transactions cost.
(c) are not as an effective a hedge.
(d) do not remove the possibility of losses.
Answer: A
87) If a bank manager wants to protect the bank against losses that would be incurred on its portfolio of treasury securities should interest rates rise, he could
(a) buy put options on financial futures.
(b) buy call options on financial futures.
(c) sell put options on financial futures.
(d) sell call options on financial futures.
Answer: A
88) Hedging by buying an option
(a) limits gains
(b) Limits losses
(c) limits gains and losses
(d) has no limit on option premiums
(e) has no limit on losses
Answer: B
89) All other things held constant, premiums on options will increase when the
(a) exercise price increases.
(b) volatility of the underlying asset falls.
(c) Term to maturity increases
(d) (a) and (c) are both true.
Answer: C
90) All other things held constant, premiums on call options will increase when the
(a) exercise price falls.
(b) volatility of the underlying asset falls.
(c) term to maturity decreases.
(d) futures price increases.
Answer: A
91) An increase in the exercise price, all other things held constant, will ______ the call option premium.
(a) increase
(b) Decrease
(c) increase or decrease
(d) Not enough information is given.
Answer: B
92) All other things held constant, premiums on options will increase when the
(a) exercise price increases.
(b) Volatility of the underlying asset increases.
(c) term to maturity decreases.
(d) futures price increases.
Answer: B
93) An increase in the volatility of the underlying asset, all other things held constant, will ______ the option premium.
(a) Increase
(b) decrease
(c) increase or decrease
(d) Not enough information is given.
Answer: A
94) A tool for managing interest rate risk that requires exchange of payment streams is a
(a) futures contract.
(b) forward contract.
(c) Swap
(d) micro hedge.
(e) macro hedge.
Answer: C
95) A financial contract that obligates one party to exchange a set of payments it owns for another set of payments owned by another party is called a
(a) hedge.
(b) call option.
(c) put option.
(d) Swap
Answer: D
96) A swap that involves the exchange of a set of payments in one currency for a set of payments in another currency is a(n)
(a) interest rate swap.
(b) Currency swap
(c) swaptions.
(d) national swap.
Answer: B
97) A swap that involves the exchange of one set of interest payments for another set of interest payments is called a(n)
(a) interest rate swap
(b) currency swap
(c) swaptions
(d) national swap
Answer: A
98) A firm that sells goods to foreign countries on a regular basis can avoid exchange rate risk by
(a) buying stock options.
(b) selling puts on financial futures.
(c) Selling a foreign exchange swap
(d) buying swaptions.
Answer: C
99) The most common type of interest rate swap is
(a) The plain vanilla swap
(b) the basic swap
(c) the swaption
(d) the notional swap
(e) the ordinary swap
Answer: A
100) If Second National Bank has more rate-sensitive assets than rate-sensitive liabilities, it can reduce interest rate risk with a swap that requires Second National to
(a) pay fixed rate while receiving floating rate.
(b) receive fixed rate while paying floating rate.
(c) both receive and pay fixed rate.
(d) both receive and pay floating rate.
Answer: B
101) If a bank has more rate-sensitive assets than rate-sensitive liabilities
(a) it reduces interest rate risk by swapping rate-sensitive income for fixed rate income.
(b) it reduces interest rate risk by swapping fixed rate income for rate-sensitive income.
(c) it increases interest rate risk by swapping rate-sensitive income for fixed rate income.
(d) it neutralizes interest rate risk by receiving and paying fixed-rate streams.
(e) it cannot reduce its interest rate risk.
Answer: A
102) If Second National Bank has more rate-sensitive liabilities then rate-sensitive assets, it can reduce interest rate risk with a swap that requires Second National to
(a) Pay fixed rate while receiving floating rate
(b) Receive fixed rate while paying floating rate
(c) Both receive and pay fixed rate
(d) Both receive and pay floating rate
Answer: A
103) One advantage of using swaps to eliminate interest rate risk is that swaps
(a) are less costly than futures.
(b) Are less costly than rearranging balance sheets.
(c) are more liquid than futures.
(d) have better accounting treatment than options.
Answer: B
104) A advantage of using swaps to hedge interest rate risk is that swaps
(a) are less costly than futures.
(b) Can be written for long horizons
(c) are not subject to default risk.
(d) are more liquid than futures.
(e) have better accounting treatment than options.
Answer: B
105) The disadvantage of swaps is that they
(a) lack liquidity.
(b) are difficult to arrange for a counterparty.
(c) suffer from default risk.
(d) All of the above
Answer: D
106) A disadvantage of using swaps to control interest rate risk is that
(a) swaps cannot be written for long horizons.
(b) swaps are more expensive than restructuring balance sheets.
(c) swaps, like forward contracts, lack liquidity.
(d) all of the above are disadvantages of swaps.
(e) only (a) and (b) of the above are disadvantages of swaps.
Answer: C
107) The problems of default risk and finding counterparties for interest rate swaps has been reduced by
(a) government regulation.
(b) writing complex contracts.
(c) Commercial and investment banks serving as intermediaries.
(d) all of the above.
(e) both (b) and (c) of the above.
Answer: C
108) …………. risk is a loss may occur from the failure of another party to perform according to the terms of a contract?
a) Credit
b) Currency
c) Market
d) Liquidity
109) Financial derivatives include?
a) Stock
b) Bonds
c) Future
d) None of these
110) By hedging a portfolio; a bank manager
a) Reduces interest rate risk
b) Increases re investment risk
c) Increases exchange rate risk
d) None of these
111) A long contract requires that the investor
a) Sell securities in the future
b) Buy securities in the future
c) Hedge in the future
d) Close out his position in the future
112) The disadvantage of swaps is that they
a) Lack of liquidity
b) Suffer from default risk
c) Both A & B
d) B only
113) Hedging by buying an option
a) Limits gain
b) Limits losses
c) Limits gain & losses
d) Has no limit on losses
114) All other things held constant premium on options will increase when the
a) Exercise price increases
b) Volatility of the underlying assets fails
c) Term to maturity increases
d) Both B & C
115) An option allowing the owner to sell an asset at a future date is a ……………
a) Put option
b) Call option
c) Forward option
d) Future contract
116) Composite value of traded stocks group of secondary market is classified as
a) Stock index
b) Primary index
c) Stock market index
d) Limited liability index
117) ………….. is the minimum amount which must be remained in a margin account
a) Maintenance margin
b) Variation margin
c) Initial margin
d) None of these
118) The number of future contract outstanding is called ………….?
a) Liquidity
b) Float
c) Volume
d) Turnover
119) The amount paid for an option is the
a) Strike price
b) Discount
c) Premium
d) Yield
120) Futures contracts are more successful than interest rate forward contracts because they:
a) are less liquid
b) have greater default risk
c) are more liquid
d) have an interest rate tied to the discount rate
121) The payoffs for financial derivatives linked to
a) Securities that will be issued in the future
b) The volatality of interest rates
c) previously issued securities
d) none of the above.
122) Which of the following is not a problem with an interest rate forward contract?
a) Low interest rate
b) default risk
c) lack of liquidity
d) finding a counterparty
Thank you so much sir for preparing such an valuable questions
Thanks…Please scan UPI code and help us