Exam 1: Introduction to Derivatives

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A mutual fund is engaged in the short term and temporary purchase of index futures, for purposes of minimizing its cash exposures. Which ʺuseʺ most closely explains their actions?

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

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Assume that an investor lends 100 shares of Jiffy, Inc. common stock to a short seller. The bid-ask prices are $32.00 - $32.50. When the position is closed the bid-ask prices are $32.50 - $33.00. The commission rate is 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. Calculate the gain or loss to the lender. Assume the lender is not subject to a bid-ask loss or commissions.

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Select the family member who is offering the most diversification to the rest of the family.

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