Chapter 25
Derivatives and Hedging Risk Multiple Choice Questions
1. A derivative is a financial instrument who value is determined by
A) regulatory body such as the FTC.
B) a primitive or underlying ast.
C) hedging a risk
D) hedging a speculation.
E) None of the above.
Answer: B Page: 696-697
2. Derivatives can be ud to either hedge or speculate. The actions
A) increa risk in both cas.
B) decrea risk in both cas.
C) spread or minimize risk in both cas.
D) offts risk by hedging and increa risk by speculating.
E) offt risks by speculating and increa risk by hedging.
Answer: D Difficulty: Medium Page: 697
3. A forward contract is described by
A) agreeing today to buy a product at a later date at a price to be t in the future.
B) agreeing today to buy a product today at its current price.
C) agreeing today to buy a product at a later date at a price t today.
D) agreeing today to buy a product if and only if its price ris above the exerci price today at its
current price
E) None of the above.
Answer: C Difficulty: Easy Page: 697
4. The buyer of a forward contract
A) will be taking delivery of the good(s) today at today's price.
B) will be making delivery of the good(s) at a later date at that date's price.
C) will be making delivery of the good(s) today at today's price.
D) will be taking delivery of the good(s) at a later date at pre-specified price.
E) Both A or D.
Answer: D Difficulty: Medium Page: 697
5. The main difference between a forward contract and a cash transaction is
A) only the cash transaction creates an obligation to perform.
B) a forward is performed at a later date while the cash transaction is performed immediately.
C) only one involves a deliverable instrument.
D) neither allows for hedging.
E) None of the above.
Answer: B Difficulty: Medium Page: 698
6. Futures contracts contrast with forward contracts by
A) trading on an organized exchange.
B) marking to the market on a daily basis.
C) allowing the ller to deliver any day over the delivery month.
D) All of the above.
E) None of the above.
Answer: D Difficulty: Easy Page: 699
7. You have taken a short position in a futures contract on corn at $2.60 per bushel. Over the next 5
days the contract ttled at 2.52, 2.57, 2.62, 2.68, 2.70. You then decide to rever your position in the futures market on the fifth day at clo. What is the net amount you receive at the end of 5 days?
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A) $0.00
B) $2.60
C) $2.70
D) $2.80
E) Must know the number of contracts
Answer: B Difficulty: Medium Page: 699-701
Rationale:
Contract nets to you the original price. The net position is bad on daily marking to the market.
The net change is $ Clo Change = $2.70 -$.10 = $2.60
8. You have taken a short position in a futures contract on corn at $2.60 per bushel. Over the next 5
days the contract ttled at 2.52, 2.57, 2.62, 2.68, 2.70. Before you can rever your position in the futures market on the fifth day you are notified to accept delivery. What will you receive on delivery and what is the net amount you receive in total?
A) $2.60; $-0.10
B) $2.60; $0.10
C) $2.60; $2.70
D) $2.70; $-0.10
E) $2.70; $2.60
Answer: E Difficulty: Medium Page: 699-701年轻人的特点
Rationale:
Delivery is made at the ttle price of $2.70. The net position is bad on daily marking to the market. The difference of -.10 = (.08 + -.05 + -.05 + -.06 + - .02), which is a loss versus the last ttle price.
9. If you bought a futures contract for $2.60 per bushel and the contract ended at $2.70 after veral
days of trading of $2.52, $2.57, $2.62, $2.68, and $2.70. What would the mark to market quence be?
A) -.08, .05, .05, .06, .02
B) .08, -.05, -.05, -.06, -.02
C) .08, .03, -.02, -.06, -.10
D) -.08, -.03, .02, .06, .10
E) .10
Answer: A Difficulty: Medium Page: 698-701
Rationale:
Daily marking to the market from prior day ttle.
($2.52 $2.60; $2.57 $2.52; $2.62 $2.57; $2.68 $2.62; $2.70 $2.68)
= ($-.08; $.05; $.05; $.06; $.02)
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10. Suppo you agree to purcha one-ounce of gold for $382 any time over the next month. The
current price of gold is $380. The spot price of gold then falls to $377 the next day. If the
agreement is reprented by a futures contract marking to market on a daily basis as the price
changes, what is your cash flow at the end of the business on the next day?
A) $ 0
B) $ 3
C) $ 5
D) $-3
E) $-5
Answer: D Difficulty: Medium Page: 698-701
Rationale:
∆ Futures Position = ∆ Spot = $377 - $380 = $-3
你是哪颗星11. On March 1, you contract to take delivery of 1 ounce of gold for $415. The agreement is good for
any day up to April 1. Throughout March, the price of gold hit a low of $385 and hit a high of $435.
The price ttled on March 31 at $420, and on April 1st you ttle your futures agreement at that price. Your net cash flow is
A) $-30.
B) $-20.
C) $-15.
D) $ 5.
E) $20.
Answer: D Difficulty: Medium Page: 698-701
Rationale:
NCF = $420 - $415 = $5
12. A futures contract on gold states that buyers and llers agree to make or take delivery of an ounce
of gold for $400 per ounce. The contract expires in 3 months. The current price of gold is $350 per ounce. If the price of gold ris and continues to ri every day over the 3 month period, then when the contract is ttled, the buyer will _____ and the ller will _____.
A) lo; gain
B) gain; lo
C) gain; break even
D) gain; gain
E) lo; lo
Answer: B Difficulty: Easy Page: 698-701
13. A potential disadvantage of forward contracts versus futures contracts is
A) the extra liquidity required to cover the potential outflows that occur prior to delivery and
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caud by marking to market.
B) the incentive for a particular party to default.
C) that the buyers and llers don't know each other and never meet.
D) All of the above.
E) Both A and C.
Answer: B Difficulty: Easy Page: 701
14. A farmer with wheat in the fields and who us the futures market to protect a profit is an example
of
A) a long hedge.
B) a short hedge.
C) lling futures to guard against a potential loss.
D) Both A and C.
E) Both B and C.
Answer: E Difficulty: Medium Page: 703-704
15. A miller who needs wheat to mill to flour us the futures market to protect a profit by
A) a long hedge to take delivery.
B) a short hedge to deliver.
C) buying futures to guard against a potential loss.
D) Both A and C.
E) Both B and C.
Answer: D Difficulty: Medium Page: 705
16. A chocolate company which us the futures market to lock in the price of cocoa to protect a profit
is an example of
A) a long hedge.
B) a short hedge.
C) purchasing futures to guard against a potential loss.
D) Both A and C.
E) Both B and C.
Answer: D Difficulty: Medium Page: 705
17. If the producer of a product has entered into a fixed price sale agreement for that output, the
producer faces
A) a nice steady profit becau the output price is fixed.
B) an uncertain profit if the input prices are volatile. This risk can be reduced by a short hedge.
C) an uncertain profit if the input prices are volatile. This risk can be reduced by a long hedge.
D) a modest profit if the input prices are stable. This risk can be reduced by a long hedge.
E) a modest profit if the input prices are stable. This risk can be reduced by a short hedge.
Answer: C Difficulty: Medium Page: 705
18. You hold a forward contract to take delivery of U.S. Treasury bonds in 9 months. If the entire term
structure of interest rates shifts down over the 9-month period, the value of the forward contract will have _____ on the date of delivery.
A) rin
B) fallen
C) not changed
万象更新近义词D) either rin or fallen, depending on the maturity of the T-bond
E) collapd
Answer: A Difficulty: Medium Page: 708
19. MRGM's failure in hedging their forward position for oil delivery was contributed to by
A) a mismatch between maturity of the forward and the futures.
B) the entire term structure of oil prices not moving together.
C) contract ttlements occurring at different dates causing liquidity problems.
D) All of the above.
E) None of the above.
Answer: D Difficulty: Hard Page: 705-706
20. Two key features of futures contracts that make them more in demand than forward contracts are
过洞庭张孝祥A) futures are traded on exchanges and must be marked to the market.
如何绘制表格B) futures contracts allow flexibility in delivery dates and provide a liquid market for netting
positions.
C) futures are marked to the market and allow delivery flexibility.
D) futures are traded in liquid markets and are marked to the market.
E) None of the above.
Answer: B Difficulty: Medium Page: 699
21. If rates in the market fall between now and one month from now, the mortgage banker
A) los as the mortgages are sold at a discount.
B) gains as the mortgages are sold at a discount.
C) los as the mortgages are sold at a premium.
D) gains as the mortgages are sold at a premium.
E) neither gains nor los.
Answer: D Difficulty: Hard Page: 709-710
