Question 1

Derivatives continue to gain popularity, with the outstanding value in 2006 at more than $280 trillion.

Accepted Answer

A) True 
 B)False

Question 2

What risks are associated with swap contracts? Can any of these risks be reduced?

Accepted Answer

Swaps are not without risk. Either party

Question 3

Indications that the U.S. Treasury will need to increase its level of borrowing in the open market should result in higher market interest rates.

Accepted Answer

A) True 
 B)False

Question 4

A rise in the market price of a security may be fully offset by a loss in the futures market.

Accepted Answer

A) True 
 B)False

Question 5

What position in the swap market does each of the following parties occupy?

Accepted Answer

a. INTEX Corporation pays a fixed intere

Question 6

The seller of a stock index futures contract is betting on a bull (rising) stock market.

Accepted Answer

A) True 
 B)False

Question 7

For what specific kinds of securities is there now an active futures market? Who issues these securities?

Accepted Answer

Today, most of the trading in financial

Question 8

Most options are held to expiration.

Accepted Answer

A) True 
 B)False

Question 9

Please explain the meaning of the term consensus forecast.

Accepted Answer

Because any one forecasting technique ca

Question 10

During a period of economic expansion, according to your text,

Accepted Answer

A)  Debt security prices typically rise 
B)  Interest rates tend to fall 
C)  Long-term interest rates increase faster than short-term interest rates 
D)  Interest rates typically rise 
E)  None of the above 
A)  Debt security prices typically rise 
B)  Interest rates tend to fall 
C)  Long-term interest rates increase faster than short-term interest rates 
D)  Interest rates typically rise 
E)  None of the above

Question 11

How do the spot (cash) markets differ from futures (forward) markets?

Accepted Answer

Spot market prices are the act

Question 12

An increase in the volume of security offerings shown on the forward calendar would, other things held equal, lead financial analysts to forecast lower interest rates as security dealers attempt to lighten their inventories of unsold securities.

Accepted Answer

A) True 
 B)False

Question 13

The ____ suggests that an increase in the growth rate in the money supply results in lower interest rates in
The short-run.

Accepted Answer

A)  Fisher effect 
B)  Harrod-Keynes effect 
C)  GAP effect 
D)  Money-supply expectations effect 
E)  Money-supply liquidity effect 
A)  Fisher effect 
B)  Harrod-Keynes effect 
C)  GAP effect 
D)  Money-supply expectations effect 
E)  Money-supply liquidity effect

Question 14

Interest-rate swaps are not subject to interest-rate risk.

Accepted Answer

A) True 
 B)False

Question 15

According to your text there is no research evidence to support the notion that interest rates display seasonal patterns of highs and lows.

Accepted Answer

A) True 
 B)False

Question 16

The term of the Federal funds futures contract traded at the Chicago Board of Trade is:

Accepted Answer

A)  30 days 
B)  60 days 
C)  90 days 
D)  180 days 
E)  1 year 
A)  30 days 
B)  60 days 
C)  90 days 
D)  180 days 
E)  1 year

Question 17

The old line British investment bank and security dealer that collapsed in 1995 due to massive losses in trading derivatives was:

Accepted Answer

A)  National Westminster Bank 
B)  Barings Brothers 
C)  Royal Dominion Securities 
D)  British Royal Ltd 
E)  None of the above 
A)  National Westminster Bank 
B)  Barings Brothers 
C)  Royal Dominion Securities 
D)  British Royal Ltd 
E)  None of the above

Question 18

If the Flow-of-Funds approach to forecasting interest rates projects that credit demand will be less than credit supply at current interest rates, this would be a forecast that interest rates will decrease in the future.

Accepted Answer

A) True 
 B)False

Question 19

As the delivery date specified in the futures contract draws nearer, the gap or basis between the futures and spot prices for the same asset narrows.

Accepted Answer

A) True 
 B)False

Question 20

Derivatives continue to gain popularity, with the outstanding value in 2006 at more than

Accepted Answer

A)  $150 billion 
B)  $200 trillion 
C)  $280 trillion 
D)  $350 trillion 
E)  None of the above 
A)  $150 billion 
B)  $200 trillion 
C)  $280 trillion 
D)  $350 trillion 
E)  None of the above

Exam 9: Interest-Rate Forecasting and Hedging: Swaps, Financial Futures, and Options

Derivatives continue to gain popularity, with the outstanding value in 2006 at more than $280 trillion.

What risks are associated with swap contracts? Can any of these risks be reduced?

Indications that the U.S. Treasury will need to increase its level of borrowing in the open market should result in higher market interest rates.

A rise in the market price of a security may be fully offset by a loss in the futures market.

What position in the swap market does each of the following parties occupy?

The seller of a stock index futures contract is betting on a bull (rising) stock market.

For what specific kinds of securities is there now an active futures market? Who issues these securities?

Most options are held to expiration.

Please explain the meaning of the term consensus forecast.

During a period of economic expansion, according to your text,

How do the spot (cash) markets differ from futures (forward) markets?

An increase in the volume of security offerings shown on the forward calendar would, other things held equal, lead financial analysts to forecast lower interest rates as security dealers attempt to lighten their inventories of unsold securities.

The ____ suggests that an increase in the growth rate in the money supply results in lower interest rates in The short-run.

Interest-rate swaps are not subject to interest-rate risk.

According to your text there is no research evidence to support the notion that interest rates display seasonal patterns of highs and lows.

The term of the Federal funds futures contract traded at the Chicago Board of Trade is:

The old line British investment bank and security dealer that collapsed in 1995 due to massive losses in trading derivatives was:

If the Flow-of-Funds approach to forecasting interest rates projects that credit demand will be less than credit supply at current interest rates, this would be a forecast that interest rates will decrease in the future.

As the delivery date specified in the futures contract draws nearer, the gap or basis between the futures and spot prices for the same asset narrows.

Derivatives continue to gain popularity, with the outstanding value in 2006 at more than

Functions and Roles of the Financial System in the Global Economy

Financial Assets, Money, Financial Transactions, and Financial Institutions

The Financial Information Marketplace

The Future of the Financial System and the Money and Capital Markets

The Determinants of Interest Rates: Competing Ideas

Measuring and Calculating Interest Rates and Financial Asset Prices

Inflation and Deflation, Yield Curves, and Duration: Impact on Interest Rates and Asset Prices

The Risk Structure of Interest Rates: Defaults, Prepayments, Taxes, and Other Rate-Determining Factors

Introduction to the Money Market and the Roles Played by Governments and Security Dealers

Commercial Banks, Major Corporations, and Federal Credit Agencies in the Money Market

Roles and Services of the Federal Reserve and Other Central Banks Around the World

The Tools and Goals of Central Bank Monetary Policy

The Commercial Banking Industry: Structure, Products, and Management

Nonbank Thrift Institutions: Savings and Loans, Savings Banks, Credit Unions, and Money Market Funds

Mutual Funds, Insurance Companies, Investment Banks, and Other Financial Firms

Regulation of the Financial Institutions Sector

Federal, State, and Local Governments Operating in the Financial Markets

Business Borrowing: Corporate Bonds, Asset-Backed Securities, Bank Loans, and Other Forms of Business Debt

The Market for Corporate

Consumer Lending and Borrowing

The Residential Mortgage Market Stock

International Transactions and Currency Values

International Banking

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