Question 1

Consider the following:   If the futures market price is 1.63 A$/$, how could you arbitrage?

Accepted Answer

A) Borrow Australian dollars in Canada convert them to dollars, lend the proceeds in the United States, and enter futures positions to purchase Canadian dollars at the current futures price. 
B) Borrow U.S.dollars in the United States, convert them to Canadian dollars, lend the proceeds in Canada, and enter futures positions to sell Australian dollars at the current futures price. 
C) Borrow U.S.dollars in the United States, invest them in the U.S., and enter futures positions to purchase Canadian dollars at the current futures price. 
D) Borrow Canadian dollars in Canada and invest them there, then convert back to U.S.dollars at the spot price. 
A) Borrow Australian dollars in Canada convert them to dollars, lend the proceeds in the United States, and enter futures positions to purchase Canadian dollars at the current futures price. 
B) Borrow U.S.dollars in the United States, convert them to Canadian dollars, lend the proceeds in Canada, and enter futures positions to sell Australian dollars at the current futures price. 
C) Borrow U.S.dollars in the United States, invest them in the U.S., and enter futures positions to purchase Canadian dollars at the current futures price. 
D) Borrow Canadian dollars in Canada and invest them there, then convert back to U.S.dollars at the spot price.

Question 2

If you took a short position in three S&P 500 futures contracts at a price of 900 and closed the position when the index futures was 885, you incurred

Accepted Answer

A) a gain of $11,250. 
B) a loss of $11,250. 
C) a loss of $8,000. 
D) a gain of $8,000. 
A) a gain of $11,250. 
B) a loss of $11,250. 
C) a loss of $8,000. 
D) a gain of $8,000.

Question 3

Which one of the following stock index futures has a multiplier of $50 times the index value?

Accepted Answer

A) Mini-Russell 2000 
B) FTSE 100 
C) S&P Mid-Cap 
D) DAX-30 
A) Mini-Russell 2000 
B) FTSE 100 
C) S&P Mid-Cap 
D) DAX-30

Question 4

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?

Accepted Answer

A) $1.62/BP 
B) $1.72/BP 
C) $1.82/BP 
D) $1.92/BP 
A) $1.62/BP 
B) $1.72/BP 
C) $1.82/BP 
D) $1.92/BP

Question 5

Consider the following:   What should be the proper futures price for a 1-year contract?

Accepted Answer

A) 1.703 A$/$ 
B) 1.654 A$/$ 
C) 1.638 A$/$ 
D) 1.778 A$/$ 
A) 1.703 A$/$ 
B) 1.654 A$/$ 
C) 1.638 A$/$ 
D) 1.778 A$/$

Question 6

You are given the following information about a portfolio you are to manage.For the long term, you are bullish, but you think the market may fall over the next month.   For a 75-point drop in the S&P 500, by how much does the futures position change?

Accepted Answer

A) $200,000 
B) $50,000 
C) $250,000 
D) $500,000 
E) $18,750 
A) $200,000 
B) $50,000 
C) $250,000 
D) $500,000 
E) $18,750

Question 7

Foreign exchange futures markets are __________, and the foreign exchange forward markets are __________.

Accepted Answer

A) informal; formal 
B) formal; formal 
C) formal; informal 
D) informal; informal 
A) informal; formal 
B) formal; formal 
C) formal; informal 
D) informal; informal

Question 8

Consider the following:   Assume the current market futures price is 1.66 CAD$/$.You borrow 167,000 CAD$, convert the proceeds to U.S.dollars, and invest them in the U.S.at the risk-free rate.You simultaneously enter a contract to purchase 170,340 CAD$ at the current futures price (maturity of 1 year).What would be your profit (loss)?

Accepted Answer

A) Profit of 630 CAD$ 
B) Loss of 2300 CAD$ 
C) Profit of 2300 CAD$ 
D) Loss of 630 CAD$ 
A) Profit of 630 CAD$ 
B) Loss of 2300 CAD$ 
C) Profit of 2300 CAD$ 
D) Loss of 630 CAD$

Question 9

The value of a futures contract for storable commodities can be determined by the _______, and the model __________ consistent with parity relationships.

Accepted Answer

A) CAPM; will be 
B) CAPM; will not be 
C) APT; will not be 
D) APT; will be 
E) CAPM and APT; will be 
A) CAPM; will be 
B) CAPM; will not be 
C) APT; will not be 
D) APT; will be 
E) CAPM and APT; will be

Question 10

Credit risk in the swap market

Accepted Answer

A) is extensive. 
B) is limited to the difference between the values of the fixed rate and floating rate obligations. 
C) is equal to the total value of the payments that the floating rate payer was obligated to make. 
D) is extensive and equal to the total value of the payments that the floating rate payer was obligated to make. 
A) is extensive. 
B) is limited to the difference between the values of the fixed rate and floating rate obligations. 
C) is equal to the total value of the payments that the floating rate payer was obligated to make. 
D) is extensive and equal to the total value of the payments that the floating rate payer was obligated to make.

Question 11

Consider the following:   If the market futures price is 1.69 A$/$, how could you arbitrage?

Accepted Answer

A) Borrow Canadian dollars in Canada, convert them to dollars, lend the proceeds in the United States, and enter futures positions to purchase Canadian dollars at the current futures price. 
B) Borrow U.S.dollars in the United States, convert them to Canadian dollars, lend the proceeds in Canada, and enter futures positions to sell Canadian dollars at the current futures price. 
C) Borrow U.S.dollars in the United States, invest them in the U.S., and enter futures positions to purchase Canadian dollars at the current futures price. 
D) Borrow Canadian dollars in Canada and invest them there, then convert back to U.S.dollars at the spot price. 
A) Borrow Canadian dollars in Canada, convert them to dollars, lend the proceeds in the United States, and enter futures positions to purchase Canadian dollars at the current futures price. 
B) Borrow U.S.dollars in the United States, convert them to Canadian dollars, lend the proceeds in Canada, and enter futures positions to sell Canadian dollars at the current futures price. 
C) Borrow U.S.dollars in the United States, invest them in the U.S., and enter futures positions to purchase Canadian dollars at the current futures price. 
D) Borrow Canadian dollars in Canada and invest them there, then convert back to U.S.dollars at the spot price.

Question 12

You are given the following information about a portfolio you are to manage.For the long term, you are bullish, but you think the market may fall over the next month.   If the anticipated market value materializes, what will be your expected loss on the portfolio?

Accepted Answer

A) 7.58% 
B) 6.52% 
C) 15.43% 
D) 8.57% 
A) 7.58% 
B) 6.52% 
C) 15.43% 
D) 8.57%

Question 13

Which of the following is(are) example(s) of interest rate futures contracts?

Accepted Answer

A) Corporate bonds 
B) Treasury bonds 
C) Eurodollars 
D) Treasury bonds and Eurodollars 
A) Corporate bonds 
B) Treasury bonds 
C) Eurodollars 
D) Treasury bonds and Eurodollars

Question 14

Which two indices had the lowest correlation between them during the 2008-2012 period?

Accepted Answer

A) S&P and DJIA; the correlation was 0.979 
B) S&P and NASDAQ 100; the correlation was 0.928 
C) DJIA and Russell 2000; the correlation was 0.908 
D) S&P and Russell 2000; the correlation was 0.948 
E) NASDAQ 100 and DJIA; the correlation was 0.876 
A) S&P and DJIA; the correlation was 0.979 
B) S&P and NASDAQ 100; the correlation was 0.928 
C) DJIA and Russell 2000; the correlation was 0.908 
D) S&P and Russell 2000; the correlation was 0.948 
E) NASDAQ 100 and DJIA; the correlation was 0.876

Question 15

The most common short-term interest rate used in the swap market is

Accepted Answer

A) the U.S.discount rate. 
B) the U.S.prime rate. 
C) the U.S.fed funds rate. 
D) LIBOR. 
A) the U.S.discount rate. 
B) the U.S.prime rate. 
C) the U.S.fed funds rate. 
D) LIBOR.

Question 16

A hedge ratio can be computed as

Accepted Answer

A) profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate. 
B) the change in value of the unprotected position for a given change in the exchange rate divided by the profit derived from one futures position for the same exchange rate. 
C) profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate. 
D) the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate. 
A) profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate. 
B) the change in value of the unprotected position for a given change in the exchange rate divided by the profit derived from one futures position for the same exchange rate. 
C) profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate. 
D) the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate.

Question 17

If a stock index futures contract is overpriced, you would exploit this situation by

Accepted Answer

A) selling both the stock index futures and the stocks in the index. 
B) selling the stock index futures and simultaneously buying the stocks in the index. 
C) buying both the stock index futures and the stocks in the index. 
D) buying the stock index futures and selling the stocks in the index. 
A) selling both the stock index futures and the stocks in the index. 
B) selling the stock index futures and simultaneously buying the stocks in the index. 
C) buying both the stock index futures and the stocks in the index. 
D) buying the stock index futures and selling the stocks in the index.

Question 18

Which two indices had the highest correlation between them during the 2008-2012 period?

Accepted Answer

A) S&P and DJIA; the correlation was 0.979 
B) S&P and Russell 2000; the correlation was 0.948 
C) DJIA and Russell 2000; the correlation was 0.908 
D) S&P and NASDAQ 100; the correlation was 0.928 
A) S&P and DJIA; the correlation was 0.979 
B) S&P and Russell 2000; the correlation was 0.948 
C) DJIA and Russell 2000; the correlation was 0.908 
D) S&P and NASDAQ 100; the correlation was 0.928

Question 19

Suppose that the risk-free rates in the United States and in Japan are 5.25% and 4.5%, respectively.The spot exchange rate between the dollar and the yen is $0.008828/yen.What should the futures price of the yen for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs?

Accepted Answer

A) $0.009999/yen 
B) $0.009981/yen 
C) $0.008981/yen 
D) $0.008891/yen 
A) $0.009999/yen 
B) $0.009981/yen 
C) $0.008981/yen 
D) $0.008891/yen

Question 20

If interest rate parity holds,

Accepted Answer

A) covered interest arbitrage opportunities will exist. 
B) covered interest arbitrage opportunities will not exist. 
C) arbitragers will be able to make risk-free profits. 
D) covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits. 
A) covered interest arbitrage opportunities will exist. 
B) covered interest arbitrage opportunities will not exist. 
C) arbitragers will be able to make risk-free profits. 
D) covered interest arbitrage opportunities will exist, and arbitragers will be able to make risk-free profits.

Exam 23: Futures, Swaps, and Risk Management

Consider the following: If the futures market price is 1.63 A$/$, how could you arbitrage?

If you took a short position in three S&P 500 futures contracts at a price of 900 and closed the position when the index futures was 885, you incurred

Which one of the following stock index futures has a multiplier of $50 times the index value?

Consider the following: What should be the proper futures price for a 1-year contract?

You are given the following information about a portfolio you are to manage.For the long term, you are bullish, but you think the market may fall over the next month. For a 75-point drop in the S&P 500, by how much does the futures position change?

Foreign exchange futures markets are __________, and the foreign exchange forward markets are __________.

The value of a futures contract for storable commodities can be determined by the _______, and the model __________ consistent with parity relationships.

Credit risk in the swap market

Consider the following: If the market futures price is 1.69 A$/$, how could you arbitrage?

You are given the following information about a portfolio you are to manage.For the long term, you are bullish, but you think the market may fall over the next month. If the anticipated market value materializes, what will be your expected loss on the portfolio?

Which of the following is(are) example(s) of interest rate futures contracts?

Which two indices had the lowest correlation between them during the 2008-2012 period?

The most common short-term interest rate used in the swap market is

A hedge ratio can be computed as

If a stock index futures contract is overpriced, you would exploit this situation by

Which two indices had the highest correlation between them during the 2008-2012 period?

If interest rate parity holds,

The Investment Environment

Financial Markets, Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Foreign exchange futures markets are , and the foreign exchange forward markets are .

The value of a futures contract for storable commodities can be determined by the _, and the model ____ consistent with parity relationships.