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1 | |
One of the instruments listed below is not currently traded on a futures and options exchange. This instrument is: |
| | A) | Municipal bonds |
| | B) | Eurodollar time deposits |
| | C) | Swiss francs |
| | D) | Banker's acceptances |
| | E) | U.S. Treasury notes |
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2 | |
The denomination for 90-day T-bill contracts is: |
| | A) | $250,000 |
| | B) | $500,000 |
| | C) | $750,000 |
| | D) | $1 million |
| | E) | none of the above |
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3 | |
The development of financial futures markets for securities was prompted by: |
| | A) | large gains being realized in commodity futures. |
| | B) | financial regulatory authorities. |
| | C) | volatile interest rates. |
| | D) | GNMA mortgage-backed securities. |
| | E) | none of the above |
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4 | |
The basis for a futures contract is the: |
| | A) | spread between cash and futures market price. |
| | B) | contract denomination currently traded. |
| | C) | price of contract agreed upon between buyer and seller. |
| | D) | lowest price set the day the contract was traded. |
| | E) | none of the above |
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5 | |
In the financial futures markets, the length of contracts normally ranges from three months to: |
| | A) | 6 months |
| | B) | 1 year |
| | C) | 18 months |
| | D) | 2 years |
| | E) | none of the above |
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6 | |
The measure of the nation's money supply that includes only currency and coin held by the public plus transaction (payments) accounts is known as: |
| | A) | M1 |
| | B) | M2 |
| | C) | M3 |
| | D) | debt |
| | E) | none of the above |
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7 | |
A swap can be effectively hedged against interest-rate risk by: |
| | A) | selling out to another party. |
| | B) | entering into another swap agreement that is the mirror image of the first swap. |
| | C) | setting interest-sensitive assets equal to interest-sensitive liabilities. |
| | D) | setting asset duration equal to liability duration. |
| | E) | none of the above |
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8 | |
A swap counterparty that pays out a fixed rate and collects a floating rate is said to be in a _____________ position. |
| | A) | hedged |
| | B) | short |
| | C) | straddled |
| | D) | long |
| | E) | none of the above |
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9 | |
Short-term interest rates tend to be ______ sensitive to business cycle changes than are long-term interest rates. |
| | A) | more |
| | B) | less |
| | C) | equally |
| | D) | more sensitive in a boom and less sensitive in a recession |
| | E) | more sensitive in a recession and less sensitive in a boom |
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10 | |
The basic trading unit for Treasury bonds is: |
| | A) | $1 million |
| | B) | $100,000 |
| | C) | $250,000 |
| | D) | $500,000 |
| | E) | none of the above |
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11 | |
The term of the Federal funds futures contract traded at the Chicago Board of Trade is: |
| | A) | 30 days |
| | B) | 60 days |
| | C) | 90 days |
| | D) | 180 days |
| | E) | One year |
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12 | |
In order to buy an option, one must pay the writer a: |
| | A) | strike price. |
| | B) | market price. |
| | C) | margin. |
| | D) | premium. |
| | E) | basis. |
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13 | |
The Chicago Board of Trade opened active trading in futures contracts in October 1975, but the only type of contracts to be traded at that time were: |
| | A) | U.S. Treasury bonds |
| | B) | U.S. Treasury notes |
| | C) | U.S. Treasury bills |
| | D) | GNMA mortgage-backed certificates |
| | E) | 90-day commercial paper |
| | F) | bank certificates of deposit |
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14 | |
An insurance company expects to receive a large payment in three months. When the payment is received, it will be invested in short-term securities. It can hedge against a change in interest rates if it: |
| | A) | buys Treasury bond futures contracts. |
| | B) | sells Treasury bond futures contracts. |
| | C) | buys Treasury bill futures contracts. |
| | D) | sells Treasury bill futures contracts. |
| | E) | buys stock index futures contracts. |
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15 | |
Financial institutions in swap transactions are frequently in a hedged position, meaning that the financial institution both pays and receives both floating and fixed interest rates. Can a financial institution make any money in this position? |
| | A) | no, the hedging matches cash inflows and outflows |
| | B) | yes, because most financial institutions buy Libor deposits at a cheaper, wholesale rate |
| | C) | no, the financial institution just hedges to protect against loss |
| | D) | yes, the financial institution can charge arrangement fees and can "skim", or pay less to one counterparty than it collects from the other |
| | E) | none of the above |
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16 | |
If market interest rates rise, the value of a financial futures contract will: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain constant because the value is determined by prices in the future. |
| | D) | the change in value depends on the maturity of the futures contract. |
| | E) | none of the above |
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17 | |
In the late 1990's, Japanese government bond yields dropped to the lowest level in modern history. Reasons for this include: |
| | A) | Japan was experiencing a prolonged national recession |
| | B) | savers eschew stocks, instead bidding up bond prices |
| | C) | business owners had little demand for credit |
| | D) | all of the above |
| | E) | choices a and c only |
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18 | |
A thrift with a large fixed-rate mortgage portfolio wants to protect itself against an increase in interest rates. It should: |
| | A) | buy Treasury bond futures contracts. |
| | B) | sell Treasury bond futures contracts. |
| | C) | buy Treasury bill futures contracts. |
| | D) | sell Treasury bill futures contracts. |
| | E) | buy stock index futures contracts. |
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19 | |
The most popular exchange-traded option on a capital market instrument is: |
| | A) | Treasury bill futures. |
| | B) | stock indexes. |
| | C) | Eurodollar futures. |
| | D) | Treasury note futures. |
| | E) | Treasury bond futures. |
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20 | |
Swaps are used to protect against _____ risk, but they do not automatically protect the two parties from _____ risk. |
| | A) | interest-rate, default |
| | B) | default, liquidity |
| | C) | liquidity, interest rate |
| | D) | call, default |
| | E) | forecasting, principal |
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