Exam 1: Introduction to Derivatives

The scale by which a derivative instrument is measured and references the underlying asset is called the .

A firm provides a service that benefits from decreasing employment. This firm has a risk exposure to macro event. All other variables being equal, which of the following derivative securities is the firm most likely use to hedge its exposure?

The total number of contracts which exist and are delivery or payment is referred to as the .

Describe the concept of a bid-ask spread and how that impacts the cash flows of an investor.

Why might a variable rate mortgage be considered a ʺderivativeʺ and a fixed rate mortgage not?

Why would a corn farmer, who maintains a short futures contract after harvesting and selling her crop, be considered a speculator?

Assume that you open a 100 share short position in Jiffy, Inc. common stock at the bid-ask price of $32.00 - $32.50. When you close your position the bid-ask prices are $32.50 - $33.00. If you pay a commission rate of 0.5%, calculate your profit or loss on the short investment?

Which of the following is not a derivative instrument?

During the growing season a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a:

What phrase is often used interchangeably with the phrase market capitalization?

Who from the following list would be considered a speculator by entering into a futures or options contract on commodities?

This measures the number of financial claims that change hands either daily or annually.

Assume that you open a 100 share short position in Jiffy, Inc. common stock at the bid-ask prices of $32.00 - $32.50. When you close your position the bid-ask prices are $32.50 - $33.00. You pay a commission rate of 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. What is your additional gain or loss due to leasing the asset?

What is the cost of 100 shares of Jiffy, Inc. stock given that the bid-ask prices are $31.25 - $32.00 and a $15.00 commission per transaction exists?

What phrase might be used to describe the initial transaction a short seller initiates when shorting an equity security?

All of the following are financially engineered products, except:

Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of $32.00 - $32.50. When you sell the bid-ask prices are $32.50 - $33.00. If you pay a commission rate of 0.5%, what is your profit or loss?

What kind of risk does not disappear when spread across many investors?

For families employed and living in ʺcompany townsʺ (i.e., where the major employer owns all homes, retail stores, etc.), explain the lack of diversification.

According to trading volume data tabulated for 2002, which international futures exchange market experienced the highest total trading volume in the world?