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Multiple Choice Quiz
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1
If a stock index futures contract is overpriced, you would exploit this situation by
A)selling both the stock index futures and the stocks in the index.
B)buying the stock index futures and selling the stocks in the index.
C)buying both the stock index futures and the stocks in the index.
D)selling the stock index futures and simultaneously buying the stocks in the index.
E)none of the above
2
Credit risk in the swap market
A)is unquantifiable.
B)is equal to the total value of the payments that the floating rate payer was obligated to make.
C)is limited to the difference between the values of the fixed rate and floating rate obligations.
D)A and C
E)none of the above
3
Commodity futures pricing
A)converges to spot prices at maturity.
B)includes cost of carry.
C)must be related to spot prices.
D)all of the above
E)none of the above
4
Hedging one commodity by using a futures contract on another commodity is called
A)surrogate hedging.
B)cross hedging.
C)alternative hedging.
D)correlative hedging.
E)proxy hedging.
5
In the equation Profits = a + b × ($/£ exchange rate), b is a measure of
A)the firm's beta when measured in terms of the foreign currency.
B)the ratio of the firm's beta in terms of dollars to the firm's beta in terms of pounds.
C)the sensitivity of the exchange rate to profits.
D)the sensitivity of profits to the exchange rate.
E)the frequency with which the exchange rate changes.
6
Which one of the following stock index futures has a multiplier of 250?
A)Russell 2000
B)DAX-30
C)Nikkei
D)S&P 500 Index
E)Nasdaq 100
7
Suppose that the risk-free rates in the United States and in the United Kingdom are 5% and 4%, respectively. The spot exchange rate between the dollar and the pound is $1.80/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.
A)$1.62/BP
B)$1.72/BP
C)$1.82/BP
D)$1.92/BP
E)none of the above
8
Foreign exchange futures markets are __________ and the foreign exchange forward markets are __________.
A)informal; formal
B)formal; formal
C)formal; informal
D)informal; informal
E)unorganized; organized
9
Which of the following are examples of interest rate futures contracts?
A)Corporate bonds
B)Treasury bonds
C)Eurodollars
D)B and C
E)A and B
10
A Eurodollar futures contract has a 7.5% rate. The listing for this contract would show a value of ________.
A)7.5
B)75
C).075
D)92.5
E)925





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