Question 1

Credit Default Swaps are a special form of swap akin to an insurance policy on bonds.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is considered to be a derivative?

Accepted Answer

A)   Bonds
B)   Mutual funds
C)   Swaps
D)   EquitiesE) B) and C)
F) None of the above

Question 3

Financial derivatives are not considered to be financial instruments.

Accepted Answer

A) True 
 B)False

Question 4

What is the difference between a European option and an American option?

Accepted Answer

A European option is exercised...

Question 5

A swaption is a financial derivative that is a combination of a swap and an option.

Accepted Answer

A) True 
 B)False  True

Question 6

A wholesale firm agrees to deliver 2 tons of fertilizer to Ronald, a farmer, one month from today at a price of $110 per ton. This is an example of a(n)

Accepted Answer

A)   swap.
B)   futures contract.
C)   forward contract.
D)   option.E) None of the above
F) A) and D)

Question 7

An individual's assets will also include rented property.

Accepted Answer

A) True 
 B)False

Question 8

An option that can be exercised on or before its maturity is known as a(n)

Accepted Answer

A)   American option.
B)   barrier option.
C)   European option.
D)   Swiss option.E) C) and D)
F) B) and D)

Question 9

As the market prices and the price stated in a futures contract diverge, the incentive to default decreases.

Accepted Answer

A) True 
 B)False

Question 10

A margin account is an account in which a futures trader deposits cash equal to the value of the futures contract.

Accepted Answer

A) True 
 B)False

Question 11

Explain how speculation makes hedging possible.

Accepted Answer

Investors can hedge only if th...

Question 12

Return volatility is

Accepted Answer

A)   the statistical dispersion of financial returns on an investment.
B)   the probability that a swap will increase in value.
C)   the probability that a swaption will lose its value.
D)   none of the aboveE) B) and C)
F) None of the above

Question 13

Which of the following is NOT a type of derivative?

Accepted Answer

A)   futures
B)   options
C)   forwards
D)   all are derivativesE) None of the above
F) B) and D)

Question 14

The difficulties associated with forward contracts can be eliminated by:

Accepted Answer

A)   mandating a minimum amount to be paid by the buyer.
B)   developing standardized weights, definitions, and expiration dates.
C)   reducing the possibility of hedging and speculation.
D)   reducing the liquidity of the forwards market.E) A) and B)
F) C) and D)

Question 15

What is a financial derivative?

Accepted Answer

Financial derivatives are special types ...

Question 16

In a forward contract, one party usually has an incentive to break the agreement.

Accepted Answer

A) True 
 B)False

Question 17

What is a swap?

Accepted Answer

Swaps are exchanges of one asset for another on a predetermined, typically repeated basis.

Question 18

Futures are a standardized form of forward contracts developed by the Chicago Board of Trade among others.

Accepted Answer

A) True 
 B)False

Question 19

The purchaser of an option can never lose more than the premium paid.

Accepted Answer

A) True 
 B)False

Question 20

Why were standardized forward contracts introduced?

Accepted Answer

Exchanges introduced standardized forward contracts to reduce the problems associated with forwards.

Exam 12: Financial Derivatives

Credit Default Swaps are a special form of swap akin to an insurance policy on bonds.

Correct AnswerverifiedShow Answer

Which of the following is considered to be a derivative?

Correct AnswerverifiedShow Answer

Financial derivatives are not considered to be financial instruments.

Correct AnswerverifiedShow Answer

What is the difference between a European option and an American option?

Correct AnswerverifiedA European option is exercised...View AnswerShow Answer

A swaption is a financial derivative that is a combination of a swap and an option.

Correct AnswerverifiedTrue

A wholesale firm agrees to deliver 2 tons of fertilizer to Ronald, a farmer, one month from today at a price of $110 per ton. This is an example of a(n)

Correct AnswerverifiedShow Answer

An individual's assets will also include rented property.

Correct AnswerverifiedShow Answer

An option that can be exercised on or before its maturity is known as a(n)

Correct AnswerverifiedShow Answer

As the market prices and the price stated in a futures contract diverge, the incentive to default decreases.

Correct AnswerverifiedShow Answer

A margin account is an account in which a futures trader deposits cash equal to the value of the futures contract.

Correct AnswerverifiedShow Answer

Explain how speculation makes hedging possible.

Correct AnswerverifiedInvestors can hedge only if th...View AnswerShow Answer

Return volatility is

Correct AnswerverifiedShow Answer

Which of the following is NOT a type of derivative?

Correct AnswerverifiedShow Answer

The difficulties associated with forward contracts can be eliminated by:

Correct AnswerverifiedShow Answer

What is a financial derivative?

Correct AnswerverifiedFinancial derivatives are special types ...View AnswerShow Answer

In a forward contract, one party usually has an incentive to break the agreement.

Correct AnswerverifiedShow Answer

What is a swap?

Correct AnswerverifiedSwaps are exchanges of one asset for another on a predetermined, typically repeated basis.

Futures are a standardized form of forward contracts developed by the Chicago Board of Trade among others.

Correct AnswerverifiedShow Answer

The purchaser of an option can never lose more than the premium paid.

Correct AnswerverifiedShow Answer

Why were standardized forward contracts introduced?

Correct AnswerverifiedExchanges introduced standardized forward contracts to reduce the problems associated with forwards.

Correct Answer
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A European option is exercised...
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True

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Investors can hedge only if th...
View Answer

Correct Answer
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Financial derivatives are special types ...
View Answer

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Swaps are exchanges of one asset for another on a predetermined, typically repeated basis.

Correct Answer
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Correct Answer
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Correct Answer
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Exchanges introduced standardized forward contracts to reduce the problems associated with forwards.