Question 1

An interest rate swap contract whose notional principal can vary due to changes in market interest rates is known as a(n):

Accepted Answer

A)  Variable principal swap 
B)  Variable rate swap 
C)  Index amortizing rate swap 
D)  Fluctuating notional swap 
E)  None of the above 
A)  Variable principal swap 
B)  Variable rate swap 
C)  Index amortizing rate swap 
D)  Fluctuating notional swap 
E)  None of the above

Question 2

How can public opinion affect interest rates? Why might public opinion be important in interest-rate forecasting?

Accepted Answer

In the expectations hypothesis, the slop

Question 3

More recently, options have been offered on:

Accepted Answer

A)  ETFs 
B)  LEAPs 
C)  FLEX 
D)  All of the above 
E)  None of the above 
A)  ETFs 
B)  LEAPs 
C)  FLEX 
D)  All of the above 
E)  None of the above

Question 4

The volatility ratio is a measure of basis risk associated with a futures contract.

Accepted Answer

A) True 
 B)False

Question 5

Long-term securities carry greater income risk to the investor than short-term securities.

Accepted Answer

A) True 
 B)False

Question 6

A swap counterparty that pays out a fixed rate and collects a floating rate is said to be in a _______ position.

Accepted Answer

A)  Hedged 
B)  Short 
C)  Straddled 
D)  Long 
E)  None of the above 
A)  Hedged 
B)  Short 
C)  Straddled 
D)  Long 
E)  None of the above

Question 7

Futures contracts on T-bills have maturities of:

Accepted Answer

A)  30 - 90 days 
B)  90 days - one year 
C)  60 - 90 days 
D)  1 - 2 years 
E)  None of the above 
A)  30 - 90 days 
B)  90 days - one year 
C)  60 - 90 days 
D)  1 - 2 years 
E)  None of the above

Question 8

Research has increasingly pointed towards time patterns in market rates that come close to a(n):

Accepted Answer

A)  Efficient market 
B)  Random walk 
C)  Strong form of efficient market 
D)  All of the above 
E)  None of the above 
A)  Efficient market 
B)  Random walk 
C)  Strong form of efficient market 
D)  All of the above 
E)  None of the above

Question 9

The Treasury bond futures option contract is traded in units of $100,000.

Accepted Answer

A) True 
 B)False

Question 10

Hedging in the futures market:

Accepted Answer

A)  Reduces the overall risk in the market 
B)  Does not affect the risk in the market 
C)  Does not reduce the risk in the market 
D)  B and C above 
E)  None of the above 
A)  Reduces the overall risk in the market 
B)  Does not affect the risk in the market 
C)  Does not reduce the risk in the market 
D)  B and C above 
E)  None of the above

Question 11

In the financial futures markets, the length of contracts normally ranges from three months to:

Accepted Answer

A)  6 months 
B)  1 year 
C)  18 months 
D)  2 years 
E)  None of the above 
A)  6 months 
B)  1 year 
C)  18 months 
D)  2 years 
E)  None of the above

Question 12

Trading in the financial futures market allows an investor to sell futures contracts on selected securities to protect against the risk of a decline in the yield of the investment.

Accepted Answer

A) True 
 B)False

Question 13

Long-term and short-term interest rates behave somewhat differently over the course of a business cycle of expansion and contraction. Please describe the differences in behavior between short and long-term interest rates that are typically observed.

Accepted Answer

Both long-term and short-term interest r

Question 14

Short-term interest rates tend to be more volatile than long-term interest rates.

Accepted Answer

A) True 
 B)False

Question 15

All futures contracts trade in the same quantities and have the same delivery dates.

Accepted Answer

A) True 
 B)False

Question 16

For the purchaser of a call option the option will normally be exercised for profit if the market price of the underlying futures contract or security climbs above the sum of the strike price, option premium, taxes and transactions costs.

Accepted Answer

A) True 
 B)False

Question 17

Hedging may be compared to insurance in that it actually reduces risk.

Accepted Answer

A) True 
 B)False

Question 18

When interest rates rise:

Accepted Answer

A)  Asset prices normally fall 
B)  Fixed income securities normally fall 
C)  Asset prices normally increase 
D)  A and B above 
E)  None of the above 
A)  Asset prices normally fall 
B)  Fixed income securities normally fall 
C)  Asset prices normally increase 
D)  A and B above 
E)  None of the above

Exam 9: Exploring Financial Markets and Hedging Strategies

An interest rate swap contract whose notional principal can vary due to changes in market interest rates is known as a(n):

How can public opinion affect interest rates? Why might public opinion be important in interest-rate forecasting?

More recently, options have been offered on:

The volatility ratio is a measure of basis risk associated with a futures contract.

Long-term securities carry greater income risk to the investor than short-term securities.

A swap counterparty that pays out a fixed rate and collects a floating rate is said to be in a _______ position.

Futures contracts on T-bills have maturities of:

Research has increasingly pointed towards time patterns in market rates that come close to a(n):

The Treasury bond futures option contract is traded in units of $100,000.

Hedging in the futures market:

In the financial futures markets, the length of contracts normally ranges from three months to:

Trading in the financial futures market allows an investor to sell futures contracts on selected securities to protect against the risk of a decline in the yield of the investment.

Long-term and short-term interest rates behave somewhat differently over the course of a business cycle of expansion and contraction. Please describe the differences in behavior between short and long-term interest rates that are typically observed.

Short-term interest rates tend to be more volatile than long-term interest rates.

All futures contracts trade in the same quantities and have the same delivery dates.

For the purchaser of a call option the option will normally be exercised for profit if the market price of the underlying futures contract or security climbs above the sum of the strike price, option premium, taxes and transactions costs.

Hedging may be compared to insurance in that it actually reduces risk.

When interest rates rise:

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