Exam 6: Techniques of Assetliability Management: Futures, Options, and Swaps

Assume the following information is given: $1 million (face value), thirteen-week T-bill futures contract, and the final index price is 95.00. The settlement price for this contract is:

Credit risk on a futures contract is reduced substantially by the exchange clearinghouse.

Forward contracts differ from futures contracts in which of the following ways:

Futures contracts are marked-to-market at the end of each month.

A futures contract is a standardized agreement to buy or sell a specified quantity of a financial instrument on a specified future date at a set price.

The maximum amount that the buyer of an unhedged option can lose is:

A call option gives the buyer the right (but not the obligation) to buy an underlying instrument (such as a T-bill futures contract) at a specified price (called the exercise or strike price).

If a trader buys a put option, he(she) will make a profit if the price of the underlying Asset:

Given the following definitions: D_rsa = duration of cash assets D_f = the duration of deliverable securities involved in the hypothetical futures contract from the delivery date N_f = the number of futures contracts FP = the futures price V_rsa = the market value of the assets -The correct formula for the duration of a portfolio containing both spot market assets and futures contracts is:

Options contracts ____________ holders to buy or sell a particular financial instrument at A specified price on or before a specified date.

Banks can use futures contracts to both speculate and hedge against future interest rate Movements:

If a bank has a positive dollar gap, it could hedge its interest rate risk by:

Unlike futures contracts, options contracts:

Options represent contracts that provide the holder both the right and obligation to buy a security.

The margin on a futures contract represents the amount that the buyer of the contract borrowed from a broker.

A bank may defer gains and losses for a macro hedge.

In an interest rate swap two firms exchange:

In a macro hedge, the bank is hedging the entire portfolio.

A bank with a positive dollar gap could reduce its interest rate risk by receiving fixed and paying floating in an interest rate swap.

The ______ is really a performance bond that guarantees that the buyer or seller of a Futures contract will fulfill the commitment.