Financial Derivatives And Risk Management Set 4

Master of Commerce (M.com)

Practice Mode Previous Next
On This Page

This set of Financial Derivatives and Risk Management Multiple Choice Questions & Answers (MCQs) focuses on Financial Derivatives And Risk Management Set 4

Q1 | Forward contracts are risky because they
  • are subject to lack of liquidity
  • are subject to default risk.
  • hedge a portfolio.
  • both (a) and (b) are true.
Answer: both (a) and (b) are true.
Q2 | A contract that requires the investor to sell securities on a future date is called a
  • short contract
  • long contract
  • hedge
  • micro hedge
Answer: long contract
Q3 | Hedging risk for a long position is accomplished by
  • taking another long position.
  • taking a short position.
  • taking additional long and short positionsin equal amounts.
  • taking a neutral position.
Answer: taking a short position.
Q4 | Hedging risk for a short position is accomplished by
  • taking a long position.
  • taking another short position.
  • taking additional long and short positionsin equal amounts.
  • taking a neutral position.
Answer: taking a long position.
Q5 | A disadvantage of a forward contract is that
  • it may be difficult to locate a counterparty.
  • the forward market suffers from lack of liquidity.
  • these contracts have default risk.
  • all of the above.
Answer: all of the above.
Q6 | Futures markets have grown rapidly because futures
  • are standardized.
  • have lower default risk.
  • are liqu
  • d. all of the above
Answer: d. all of the above
Q7 | If you sold a short contract on financial futures you hope interest rates
  • rise.
  • fall.
  • are stable.
  • fluctuate.
Answer: rise.
Q8 | Which of the following is not a financial derivative?
  • Stock
  • Futures
  • Options
  • Forward contract
Answer: Stock
Q9 | A swap agreement created through the synthesis of two swaps differing in duration for the purposeof fulfilling the specific time frame needed of an investor
  • Forward starting swap
  • Roller coaster swap
  • Amortizing swap
  • Accreting swap
Answer: Forward starting swap
Q10 | A swap where interest rate risk can be shifted byconverting floating rate liability or vice versa
  • Range accrual swaps
  • Index amortizing swap
  • Asian swaps
  • Roller coaster swap
Answer: Range accrual swaps
Q11 | A swap where principal amount decreases over prespecified points of time over the life time of swap
  • Forward starting swap
  • Roller coaster swap
  • Amortizing swap
  • Asian swaps
Answer: Forward starting swap
Q12 | A fixed-for-floating interest rate swap with the floating rate leg tied to an index of daily interbankrates or overnight
  • Power swap
  • Leveraged swap
  • Quanto swap
  • Overnight index swaps
Answer: Overnight index swaps
Q13 | Swaps whose notional accretes when a certain floating rate,often a different rate from the one usedto pay,lies within a range.
  • Range accrual swaps
  • Asian swaps
  • Index amortizing swap
  • Bermudan swaps
Answer: Range accrual swaps
Q14 | Standardized futures contracts exist for all of the following underlying assets except:
  • stock indexes.
  • gold.
  • common stocks.
  • Treasury bonds.
Answer: common stocks.
Q15 | Which of the following does the most to reduce default risk for futures contracts?
  • Marking to market.
  • Flexible delivery arrangements.
  • High liquidity.
  • Credit checks for both buyers and sellers.
Answer: Marking to market.
Q16 | Which of the following is most similar to a stock broker?
  • Pit trader.
  • Local.
  • Floor broker.
  • Futures commission merchant.
Answer: Futures commission merchant.
Q17 | Using futures contracts to transfer price risk is called:
  • hedging.
  • diversifying
  • arbitrage.
  • speculating.
Answer: hedging.
Q18 | Which of the following is best described as selling a synthetic asset and simultaneouslybuying the actual asset?
  • Diversifying.
  • Arbitrage.
  • Speculating.
  • Hedging.
Answer: Arbitrage.
Q19 | Which of the following has the right to sell an asset at a predetermined price?
  • A put writer.
  • A put buyer.
  • A call buyer.
  • A call writer.
Answer: A put buyer.
Q20 | Which of the following is potentially obligated to sell an asset at a predetermined price?
  • A put buyer.
  • A call buyer.
  • A put writer.
  • A call writer.
Answer: A call writer.
Q21 | Which of the following actions will not close a long position in a call option?
  • Selling a call with the same strike price, expiration, and underlying asset.
  • Buying a put with the same strike price, expiration, and underlying asset.
  • Exercising the call.
  • Allowing the call to expire.
Answer: Buying a put with the same strike price, expiration, and underlying asset.
Q22 | Which of the following strategies will be profitable if the price of the underlying asset is expectedto decrease?
  • Selling a call.
  • Selling a put.
  • Buying a put.
  • Buying a call.
Answer: Selling a call.
Q23 | Which of the following investment strategies has unlimited profit potential?
  • Writing a call.
  • Bull spread.
  • Protective put.
  • Covered call.
Answer: Protective put.
Q24 | A swap deal wherein floating rate payer pays the floating rate square or cubic or any power of therate to the counter party
  • Leveraged swap
  • Quanto swap
  • Power swap
  • Overnight index swap
Answer: Power swap
Q25 | A swap agreement that pays and resets at the same time.
  • Constant maturity swap
  • In-arrear swap
  • Roller coaster swap
  • Amortizing swap
Answer: In-arrear swap
Previous Next