Question 1

Which of the following statements is incorrect regarding swaps?

Accepted Answer

A)   Swaps involve the use of a dealer or over-the-counter market and there is credit risk with swaps.
B)   Many firms enter into swap arrangements to convert an existing fixed rate liability into a floating rate liability or vice versa.
C)   Swaps allow companies to better manage risks by shifting the risk to other parties, who are willing to bear this risk for a price.
D)   Common types of swaps are interest rate swaps, currency swaps, commodity swaps, equity swaps, and credit default swaps.
E)   A plain vanilla swap is a type of currency swap in which a party transforms a liability in one currency for a liability in another currency.F) A) and C)
G) All of the above

Question 2

Which of the following statements is false?

Accepted Answer

A)   An investor who is long a call option is the option buyer.
B)   To exercise an option is the same as writing an option.
C)   An investor who is short a call option is the option writer.
D)   Expiration date is the last date on which options can be converted or exercised.
E)   The strike price, which is also called exercise price, is the price at which an investor can buy the underlying asset.F) A) and C)
G) C) and E)

Question 3

European options are designated as such because they can only be traded in Europe.

Accepted Answer

A) True 
 B)False  False

Question 4

The following information is some of what is listed in the financial news section of the paper Describe what each of these items in Generic Company's call option .
  Describe what each of these items in Generic Company's call option listing means.

Accepted Answer

Expiration - Generic Company's call opti...

Question 5

Which of the following characteristics of a call option has an inverse (i.e., negative)  relation with the value of the option?

Accepted Answer

A)   Exercise price of the option.
B)   Market value of the underlying asset.
C)   Volatility of the price of the underlying asset.D) All of the above
E) B) and C)

Question 6

For the following call option which is at expiration, list the intrinsic value, the profit or loss, and whether the option would be exercised or let to expir
  Intrinsic value = ___________, Profit / loss (circle one) = ___________, Exercise/Allow to Expire (circle one)

Accepted Answer

Intrinsic ...

Question 7

Which of the following gives the owner the right, but not the obligation to sell an underlying asset at a fixed price for a specified time?

Accepted Answer

A)   Futures
B)   Forward
C)   Warrant
D)   Put Option
E)   Call OptionF) C) and D)
G) B) and E)

Question 8

Cancelling a futures position by making an equivalent but opposite transaction is best described as:

Accepted Answer

A)   offsetting.
B)   margin call.
C)   marked to market.
D)   daily resettlement.E) A) and D)
F) B) and C)

Question 9

Which of the following statements about a call option is true?

Accepted Answer

A)   A call option is the obligation to buy the underlying asset.
B)   A call option always has time value up to and including expiration.
C)   A call option is in the money if the asset price is less than the strike price.
D)   A call option is at the money if the asset price is the same as the strike price.E) B) and C)
F) None of the above

Question 10

A call option has a strike price of $33 and the underlying stock price is $23. The moneyness of this call option is best described as:

Accepted Answer

A)   in the money.
B)   at the money.
C)   out of the money.D) B) and C)
E) A) and C)

Question 11

Call options on high-dividend paying stocks can be very valuable because option owners receive dividends on the underlying stock.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is incorrect?

Accepted Answer

A)   A call option writer has a short position in the call.
B)   The longer the time to expiration, the greater the option's time value.
C)   A company issues call options on their stock, just like they issue the underlying stock.
D)   The market value of an option is calculated as option premium = intrinsic value + time value.
E)   The call option writer makes money from the premium the call option buyer pays to buy the option.F) A) and E)
G) C) and E)

Question 13

Uncertainty that a borrower will repay what is owed is best described as:

Accepted Answer

A)   currency risk.
B)   open interest.
C)   spot market risk.
D)   counterparty risk.E) A) and D)
F) A) and C)

Question 14

The right, but not the obligation to buy an underlying asset at a fixed price within or at a specified time is best described as a:

Accepted Answer

A)   swap.
B)   future.
C)   forward.
D)   put option.
E)   call option.F) None of the above
G) B) and C)

Question 15

A call option has a strike price of $65 and is selling for $7 in the market. The underlying asset is trading at $65. What is the intrinsic value and time value respectively, of this option?

Accepted Answer

A)   Intrinsic value $0, Time value $0
B)   Intrinsic value $7, Time value $0
C)   Intrinsic value $0, Time value $7
D)   Intrinsic value $7, Time value $7E) B) and D)
F) B) and C)

Question 16

If the underlying asset price is $25 and the strike price is $22, the intrinsic value of the option if it is a call option is ___________ and if it is a put option is ____________.

Accepted Answer

A)   0, 0
B)   0, 3
C)   3, 0
D)   3, 3E) A) and C)
F) All of the above

Question 17

If an investor purchases a futures contract for delivery of a commodity at $15 per unit, when the spot price of the commodity is $12.50 per unit the investor expects the price of the commodity to increase in the future.

Accepted Answer

A) True 
 B)False  True

Question 18

The intrinsic value of a call is the difference between the value of the underlying asset and the exercise price. When the value of the underlying asset is above the exercise price, the intrinsic value is positive. When the value of the underlying asset is below the exercise price, the intrinsic value is negative.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is incorrect?

Accepted Answer

A)   The value of an option at expiration is its intrinsic value.
B)   The longer the time to expiration, the larger the options intrinsic value.
C)   The market value of an option is the sum of its intrinsic value and time value.
D)   Before expiration, the value of an option will exceed its intrinsic value because of time value.E) B) and D)
F) C) and D) B

Question 20

Which of the following is correct?

Accepted Answer

A)   Intrinsic value = Option premium + Time value
B)   Option premium = Intrinsic value + Time value
C)   Intrinsic value = Underlying asset price + Time value
D)   Option premium = Intrinsic value + Underlying asset priceE) All of the above
F) B) and D)

Exam 18: Derivatives

Which of the following statements is incorrect regarding swaps?

Correct Answer
verified

Which of the following statements is false?

Correct Answer
verified

European options are designated as such because they can only be traded in Europe.

Correct Answer
verified
False

The following information is some of what is listed in the financial news section of the paper Describe what each of these items in Generic Company's call option . Describe what each of these items in Generic Company's call option listing means.

Correct Answer
verified
Expiration - Generic Company's call opti...
View Answer

Which of the following characteristics of a call option has an inverse (i.e., negative) relation with the value of the option?

Correct Answer
verified

For the following call option which is at expiration, list the intrinsic value, the profit or loss, and whether the option would be exercised or let to expir Intrinsic value = _, Profit / loss (circle one) = _, Exercise/Allow to Expire (circle one)

Correct Answer
verified
Intrinsic ...
View Answer

Which of the following gives the owner the right, but not the obligation to sell an underlying asset at a fixed price for a specified time?

Correct Answer
verified

Cancelling a futures position by making an equivalent but opposite transaction is best described as:

Correct Answer
verified

Which of the following statements about a call option is true?

Correct Answer
verified

A call option has a strike price of $33 and the underlying stock price is $23. The moneyness of this call option is best described as:

Correct Answer
verified

Call options on high-dividend paying stocks can be very valuable because option owners receive dividends on the underlying stock.

Correct Answer
verified

Which of the following statements is incorrect?

Correct Answer
verified

Uncertainty that a borrower will repay what is owed is best described as:

Correct Answer
verified

The right, but not the obligation to buy an underlying asset at a fixed price within or at a specified time is best described as a:

Correct Answer
verified

A call option has a strike price of $65 and is selling for $7 in the market. The underlying asset is trading at $65. What is the intrinsic value and time value respectively, of this option?

Correct Answer
verified

If the underlying asset price is $25 and the strike price is $22, the intrinsic value of the option if it is a call option is _ and if it is a put option is __.

Correct Answer
verified

If an investor purchases a futures contract for delivery of a commodity at $15 per unit, when the spot price of the commodity is $12.50 per unit the investor expects the price of the commodity to increase in the future.

Correct Answer
verified
True

Correct Answer
verified

Which of the following statements is incorrect?

Correct Answer
verified
B

Which of the following is correct?

Correct Answer
verified

Exam 18: Derivatives

Which of the following statements is incorrect regarding swaps?

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

European options are designated as such because they can only be traded in Europe.

Correct AnswerverifiedFalse

The following information is some of what is listed in the financial news section of the paper Describe what each of these items in Generic Company's call option . Describe what each of these items in Generic Company's call option listing means.

Correct AnswerverifiedExpiration - Generic Company's call opti...View AnswerShow Answer

Which of the following characteristics of a call option has an inverse (i.e., negative) relation with the value of the option?

Correct AnswerverifiedShow Answer

For the following call option which is at expiration, list the intrinsic value, the profit or loss, and whether the option would be exercised or let to expir Intrinsic value = ___________, Profit / loss (circle one) = ___________, Exercise/Allow to Expire (circle one)

Correct AnswerverifiedIntrinsic ...View AnswerShow Answer

Which of the following gives the owner the right, but not the obligation to sell an underlying asset at a fixed price for a specified time?

Correct AnswerverifiedShow Answer

Cancelling a futures position by making an equivalent but opposite transaction is best described as:

Correct AnswerverifiedShow Answer

Which of the following statements about a call option is true?

Correct AnswerverifiedShow Answer

A call option has a strike price of $33 and the underlying stock price is $23. The moneyness of this call option is best described as:

Correct AnswerverifiedShow Answer

Call options on high-dividend paying stocks can be very valuable because option owners receive dividends on the underlying stock.

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

Uncertainty that a borrower will repay what is owed is best described as:

Correct AnswerverifiedShow Answer

The right, but not the obligation to buy an underlying asset at a fixed price within or at a specified time is best described as a:

Correct AnswerverifiedShow Answer

A call option has a strike price of $65 and is selling for $7 in the market. The underlying asset is trading at $65. What is the intrinsic value and time value respectively, of this option?

Correct AnswerverifiedShow Answer

If the underlying asset price is $25 and the strike price is $22, the intrinsic value of the option if it is a call option is ___________ and if it is a put option is ____________.

Correct AnswerverifiedShow Answer

If an investor purchases a futures contract for delivery of a commodity at $15 per unit, when the spot price of the commodity is $12.50 per unit the investor expects the price of the commodity to increase in the future.

Correct AnswerverifiedTrue

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect?

Correct AnswerverifiedB

Which of the following is correct?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
False

Correct Answer
verified
Expiration - Generic Company's call opti...
View Answer

Correct Answer
verified

For the following call option which is at expiration, list the intrinsic value, the profit or loss, and whether the option would be exercised or let to expir Intrinsic value = _, Profit / loss (circle one) = _, Exercise/Allow to Expire (circle one)

Correct Answer
verified
Intrinsic ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If the underlying asset price is $25 and the strike price is $22, the intrinsic value of the option if it is a call option is _ and if it is a put option is __.

Correct Answer
verified

Correct Answer
verified
True

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified