1. 1. The underlying in a forward rate agreement is interest rate

3. 2. 3x6 FRA means entering in a three-month waiting period and a six-month contract period

1. 1. The payoffs of a long position in a forward contract value are computed as: Vt(T) = [St - F0(T)]

3. 2. The payoffs of a short position in a forward contract value are computed as: Vt(T) = —[St - F0(T)]

1. 1. FRA buyer receives the settlement amount when settlement rate is greater than the contract rate

3. 2. FRA seller receives the settlement amount when contact rate is less than the settlement rate

1. 1. It is possible to have a gain in a margin account after a 10-day period even if the investor receives a margin call 9 times during that span

3. 2. The likelihood that the margin account balance of a long futures position will receive a margin call increases as the futures price of the underlying assets decreases

1. 1. The future price goes up, the long position will realize a gain and the margin account will decrease

3. 2. If the futures price goes down, the short position will realize a gain and the margin account will increase

1. 1. The investor receives a margin call if the balance falls above the maintenance margin

3. 2. Maintenance margin is always significantly lower than the required initial margin

1. 1. The exchange acts as a clearing house which facilitates the trading process by recording all transactions and guaranteeing timely payments

3. 2. The futures exchange facilitates the trading process but does not itself take buy or sell positions on futures contracts

1. 1. In a contango market, the futures prices are lower than the spot prices

3. 2. In a backwardation market, the underlying asset typically has no storage cost

1. 1. Cost of carry is the net of the costs and benefits

3. 2. Cost of carry is holding an asset that incur a net cost that is essentially what it takes to carry an asset

1. 1. If the underlying price decreases, call option price increases and put option price decreases

3. 2. If the exercise price increases, call option price decreases and put option price increases

1. 1. Short call position has to write to sell the underlying asset

3. 2. Short put position has the obligation to buy the underlying asset

1. 1. Short call position takes the minimum value of zero or market price minus the exercise price

3. 2. Long call position takes the maximum value of zero or market price minus the exercise price

1. 1. Synthetic short put: short stock + long call

3. 2. Synthetic short stock: long put short call

1. 1. Put-call parity is the relationship between the price of a put option and price of call option on the same underlying asset which is applicable to american-style options

3. 2. American-style options can be exercised at any time prior to expiration

1. 1. Notional principal is used to compute the interest payment at the multiple settlement dates

3. 2. Notional principal is in name only and never paid by a counterparty

1. 1. The floating party will pay if the fixed rate is less than the reference rate

3. 2. To fixed party will receive if the fixed rate is greater than the reference rate

1. 1. Swap is an over-the-counter derivative contract in which two parties agree to exchange a series of cash flows in the future

3. 2. The most common swap is the plain mocha swap

1. 1. There is no need to exchange notional principals at the beginning and at the end of an interest rate swap

3. 2. Interest payments are netted in an interest rate swap

1. 1. The primary purpose of interest rate swaps is to reduce exchange rate risk

3. 2. If a large bank that has taken numerous swap positions and guaranteed many other swap positions fails, there could be several defaults on swap payments

Which of the following derivative instrument is a contingent claim?

Which of the following best describes a future contract?

Which of the following factors that affect the option price determines the risk of uncertainty of the price of an option's underlying security?

How many shares are in buying five call option contracts?

Which of the following statements is correct?

(note: expi = expiration di na kasya😔)

Which of the following represents the payoff or value of buying a put option?

Which of the following represents the payoff or value of selling a call option?

Which of the following shows the profit from the strategy of a put writer?

Which of the following is NOT a typical provision of an interest rate swap?

Which of the following is a reason why financial institutions engage in interest rates swaps?

When a bank participates in a swap of fixed interest rate payments for floating-rate payments, or a swap of currencies, which of the following statements is feasible?

In a swap arrangement, which of the following is the most common index used for floating rate payments?

Which type of swap involves the exchange of one set of interest payments for another set of interest payments?