Holding an asset and buying a put on that asset is equivalent to:

A. initiating a fiduciary call.

B. buying a risk-free zero-coupon bond and selling a call option.

C. selling a risk-free zero-coupon bond and buying a call option.

Which of the following statements is least accurate concerning differences in the pricing of forwards and futures?

B. Pricing differences can arise if futures prices and interest rates are uncorrelated.

A. Differences in the pattern of cash flows of forwards and futures can explain pricing differences.

C. Interest rate volatility can explain pricing differences.

For a risk-averse investor, the price of a risky asset, assuming no additional costs and benefits of holding the asset, is:

C. inversely related to its level of risk.

A. unrelated to the risk-free rate.

B. directly related to its level of risk.

Derivatives are similar to insurance in that both:

B. allow for the transfer of risk from one party to another.

A. have an indefinite life span.

C. allow for the transformation of the underlying risk itself.

The price of a forward contract most likely:

B. is constant and set as part of the contract specifications.

A. decreases as the price of the underlying goes up.

C. increases as market risk increases.

Which of the following factors is shared by forwards and futures contracts?

C. Nearly equivalent profits by expiration

B. Flexible settlement arrangements

At expiration, a European put option will be valuable if the exercise price is:

C. greater than the underlying price.

A. less than the underlying price.

B. equal to the underlying price.

With respect to a forward contract, as market conditions change:

C. both the price and the value fluctuate.

Under put–call–forward parity, which of the following transactions is risk free?

A. Short call, long put, long forward contract, long risk-free bond

B. Long call, short put, long forward contract, short risk-free bond

C. Long call, long put, short forward contract, short risk-free bond

The value of a European call option is inversely related to the:

C. volatility of the underlying.

In contrast to gambling, derivatives speculation:

C. benefits the financial markets and thus society.

A. has a positive public image.

B. is a form of financial risk taking.

Which of the following statements regarding the settlement of forward contracts is correct?

C. At cash settlement, when the long party acquires the asset in the market, it effectively pays the forward price.

A. Contract settlement by cash has different economic effects from those of a settlement by delivery.

B. Non-deliverable forwards and contracts for differences have distinct settlement procedures.

Most derivatives are priced by:

B. discounting the expected payoff of the derivative at the risk-free rate.

A. assuming that the market offers arbitrage opportunities.

C. applying a risk premium to the expected payoff of the derivative and its risk.

Which of the following statements describes an aspect of margin accounts for futures?

A. The maintenance margin is always less than the initial margin.

B. The initial margin required is typically at least 10% of the futures price.

C. A margin call requires a deposit sufficient to raise the account balance to the maintenance margin.

In efficient financial markets, risk-free arbitrage opportunities:

B. may persist in the long run.

If a call option is priced higher than the binomial model predicts, investors can earn a return in excess of the risk-free rate by:

C. borrowing at the risk-free rate, selling a call, and buying the underlying.

A. investing at the risk-free rate, selling a call, and selling the underlying.

B. borrowing at the risk-free rate, buying a call, and buying the underlying.

In contrast to a forward contract, a futures contract:

B. is initiated at a zero value.

If no cash is initially exchanged, a swap is comparable to a series of forward contracts when:

B. the combined value of all the forward contracts is zero.

A. the swap payments are variable.

C. all the forward contracts have the same agreed-on price.

Forward commitments subject to default are:

C. interest rate swaps and forwards.

B. futures and interest rate swaps.

Deri Test - TE2

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40 questions

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MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Over time, a forward contract most likely has variable:

A. value and constant price.

B. price and constant value.

C. value and variable price.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

If the implied volatility for options on a broad-based equity market index goes up, then it is most likely that:

A. the broad-based equity market index has gone up in value.

B. the general level of market uncertainty has gone up.

C. market interest rates have gone up.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

The value of a swap typically:

A. is non-zero at initiation.

B. is obtained through replication.

C. does not fluctuate over the life of the contract.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Valuation of a swap during its life will least likely involve the:

A. application of the principle of no arbitrage.

B. use of replication.

C. investor’s risk aversion.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

An at-the-money American call option on a stock that pays no dividends has three months remaining until expiration. The market value of the option will most likely be:

A. less than its exercise value.

B. equal to its exercise value.

C. greater than its exercise value.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

If an underlying asset’s price is less than a related option’s strike price at expiration, a protective put position on that asset versus a fiduciary call position has a value that is:

A. lower.

B. the same.

C. higher.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

The underlying in a forward rate agreement is most likely a(n):

A. growth rate of an equity index.

B. interest rate.

C. exchange rate.

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Deri Test - TE2

Over time, a forward contract most likely has variable:

If the implied volatility for options on a broad-based equity market index goes up, then it is most likely that:

The value of a swap typically:

Valuation of a swap during its life will least likely involve the:

An at-the-money American call option on a stock that pays no dividends has three months remaining until expiration. The market value of the option will most likely be:

If an underlying asset’s price is less than a related option’s strike price at expiration, a protective put position on that asset versus a fiduciary call position has a value that is:

The underlying in a forward rate agreement is most likely a(n):

Which of the following derivatives is least likely to have a value of zero at initiation of the contract?

Holding an asset and buying a put on that asset is equivalent to:

Which of the following statements is least accurate concerning differences in the pricing of forwards and futures?

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