Question 1

Counterparty risk in a futures contract is lower than in a forward contract because

Accepted Answer

A) The participants in the futures market are better funded. 
B) The futures contract is marked-to-market on a daily basis. 
C) The futures exchange bears the counterparty risk. 
D) The forward market does not charge commissions that may be used to offset the risk of counterparty failure. 
A) The participants in the futures market are better funded. 
B) The futures contract is marked-to-market on a daily basis. 
C) The futures exchange bears the counterparty risk. 
D) The forward market does not charge commissions that may be used to offset the risk of counterparty failure.

Question 2

The relationship of forwards and futures is best represented by the following statement(s)

Accepted Answer

A) If futures price movements and interest rate movements are positively correlated,then futures prices will be higher than forward prices. 
B) If futures price movements and interest rate movements are negatively correlated,then futures prices will be lower than forward prices. 
C) If futures price movements and interest rate movements are uncorrelated,then futures and forward prices will coincide. 
D) All of the above. 
A) If futures price movements and interest rate movements are positively correlated,then futures prices will be higher than forward prices. 
B) If futures price movements and interest rate movements are negatively correlated,then futures prices will be lower than forward prices. 
C) If futures price movements and interest rate movements are uncorrelated,then futures and forward prices will coincide. 
D) All of the above.

Question 3

The spot price of an asset is $50.The expected return on the asset is 10% a year (in simple terms)and the standard deviation of these returns is 20%.The risk-free rate of interest is 5% a year in simple terms.Assuming no costs or benefits of carry,what is the one-year forward price of the asset?

Accepted Answer

A) $52.50 
B) $55.00 
C) $57.50 
D) $60.00 
A) $52.50 
B) $55.00 
C) $57.50 
D) $60.00

Question 4

The forward price of an asset that has no holding costs or benefits is equal to

Accepted Answer

A) The compounded price of the spot asset,where the compounding takes place at the risk-free rate. 
B) The compounded price of the spot asset,where the compounding takes place at a rate equal to the expected return on the asset. 
C) The market's expectation of the future spot price of the asset. 
D) Its current spot price. 
A) The compounded price of the spot asset,where the compounding takes place at the risk-free rate. 
B) The compounded price of the spot asset,where the compounding takes place at a rate equal to the expected return on the asset. 
C) The market's expectation of the future spot price of the asset. 
D) Its current spot price.

Question 5

Consider that the one-year Euro interest rate is greater than the US one-year interest rate.How does the one-year forward exchange rate (USD per EUR)compare to the spot exchange rate (USD per EUR)?

Accepted Answer

A) The forward rate is larger than the spot rate 
B) The forward rate is smaller than the spot rate 
C) The forward rate is equal to the spot rate 
D) There is not enough information to answer this question 
A) The forward rate is larger than the spot rate 
B) The forward rate is smaller than the spot rate 
C) The forward rate is equal to the spot rate 
D) There is not enough information to answer this question

Counterparty risk in a futures contract is lower than in a forward contract because

The relationship of forwards and futures is best represented by the following statement(s)

The spot price of an asset is $50.The expected return on the asset is 10% a year (in simple terms)and the standard deviation of these returns is 20%.The risk-free rate of interest is 5% a year in simple terms.Assuming no costs or benefits of carry,what is the one-year forward price of the asset?

The forward price of an asset that has no holding costs or benefits is equal to

Consider that the one-year Euro interest rate is greater than the US one-year interest rate.How does the one-year forward exchange rate (USD per EUR)compare to the spot exchange rate (USD per EUR)?

Overview

Futures Markets

Pricing Forwards Futures II

Hedging With Futures Forwards

Interest-Rate Forwards Futures

Options Markets

Options: Payoffs Trading Strategies

No-Arbitrage Restrictions

Early-Exercise/Put-Call Parity

Option Pricing: An Introduction

Binomial Option Pricing

Implementing the Binomial Model

The Black-Scholes Model

Mathematics of Black-Scholes

Beyond Black-Scholes

The Option Greeks

Path-Independent Exotic Options

Exotic Options II: Path-Dependent Options

Value at Risk

Swaps and Floating Rate Products

Equity Swaps

Currency and Commodity Swaps

Term Structure of Interest Rates: Concepts

Estimating the Yield Curve

Modeling Term Structure Movements

Factor Models of the Term Structure

The Heath-Jarrow-Morton Hjmand Libor Market Model LMM

Credit Derivative Products

Structural Models of Default Risk

Reduced-Form Models of Default Risk

Modeling Correlated Default

Filters

Exam 3: Pricing Forwards and Futures I

Counterparty risk in a futures contract is lower than in a forward contract because

The relationship of forwards and futures is best represented by the following statement(s)

The spot price of an asset is $50.The expected return on the asset is 10% a year (in simple terms)and the standard deviation of these returns is 20%.The risk-free rate of interest is 5% a year in simple terms.Assuming no costs or benefits of carry,what is the one-year forward price of the asset?

The forward price of an asset that has no holding costs or benefits is equal to

Consider that the one-year Euro interest rate is greater than the US one-year interest rate.How does the one-year forward exchange rate (USD per EUR)compare to the spot exchange rate (USD per EUR)?

Overview

Futures Markets

Pricing Forwards Futures II

Hedging With Futures Forwards

Interest-Rate Forwards Futures

Options Markets

Options: Payoffs Trading Strategies

No-Arbitrage Restrictions

Early-Exercise/Put-Call Parity

Option Pricing: An Introduction

Binomial Option Pricing

Implementing the Binomial Model

The Black-Scholes Model

Mathematics of Black-Scholes

Beyond Black-Scholes

The Option Greeks

Path-Independent Exotic Options

Exotic Options II: Path-Dependent Options

Value at Risk

Swaps and Floating Rate Products

Equity Swaps

Currency and Commodity Swaps

Term Structure of Interest Rates: Concepts

Estimating the Yield Curve

Modeling Term Structure Movements

Factor Models of the Term Structure

The Heath-Jarrow-Morton Hjmand Libor Market Model LMM

Credit Derivative Products

Structural Models of Default Risk

Reduced-Form Models of Default Risk

Modeling Correlated Default

Filters