Question 1

Which of the following statements is true?

Accepted Answer

A) In a forward contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller to the buyer 'at that time'. 
B) In a forward contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller at a future point in time, e.g.after three months. 
C) In a forward contract the buyer and seller enter into a contract at time 0, the contract is marked-to-market on a daily basis, and the buyer pays the forward price quoted at expiry. 
D) None of the listed options are correct. 
A) In a forward contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller to the buyer 'at that time'. 
B) In a forward contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller at a future point in time, e.g.after three months. 
C) In a forward contract the buyer and seller enter into a contract at time 0, the contract is marked-to-market on a daily basis, and the buyer pays the forward price quoted at expiry. 
D) None of the listed options are correct.

Question 2

Which of the following statements is true?

Accepted Answer

A) In a futures contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller to the buyer 'at that time'. 
B) In a futures contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller at a future point in time, e.g.after three months. 
C) In a futures contract the buyer and seller enter into a contract at time 0, the contract is marked-to-market on a daily basis, and the buyer pays the futures price quoted at expiry. 
D) None of the listed options are correct. 
A) In a futures contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller to the buyer 'at that time'. 
B) In a futures contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller at a future point in time, e.g.after three months. 
C) In a futures contract the buyer and seller enter into a contract at time 0, the contract is marked-to-market on a daily basis, and the buyer pays the futures price quoted at expiry. 
D) None of the listed options are correct.

Question 3

Which of the following statements is true?

Accepted Answer

A) Micro-hedging refers to hedging the entire duration gap of an FI using futures or forward contracts. 
B) Macro-hedging refers to hedging the entire duration gap of an FI using futures or forward contracts. 
C) Micro-hedging refers to hedging the entire balance sheet of an FI using futures or forward contracts. 
D) Macro-hedging refers to hedging the entire balance sheet of an FI using futures or forward contracts. 
A) Micro-hedging refers to hedging the entire duration gap of an FI using futures or forward contracts. 
B) Macro-hedging refers to hedging the entire duration gap of an FI using futures or forward contracts. 
C) Micro-hedging refers to hedging the entire balance sheet of an FI using futures or forward contracts. 
D) Macro-hedging refers to hedging the entire balance sheet of an FI using futures or forward contracts.

Question 4

An Australian bank must pay US$10 million in 90 days.It wishes to hedge the risk in the futures market.To do so, the bank should:

Accepted Answer

A) buy A$10 million in US dollar futures. 
B) sell A$10 million in US dollar futures, with three-month maturity. 
C) buy US$10 million in US dollar futures. 
D) sell US$10 million in US dollar futures 
A) buy A$10 million in US dollar futures. 
B) sell A$10 million in US dollar futures, with three-month maturity. 
C) buy US$10 million in US dollar futures. 
D) sell US$10 million in US dollar futures

Question 5

Which of the following is an example of microhedging asset-side portfolio risk?

Accepted Answer

A) When an FI, attempting to lock in cost of funds to protect itself against a rise in short-term interest rates, takes a short position in futures contracts on CDs. 
B) FI manager trying to pick a futures contract whose underlying deliverable asset is not matched to the asset position being hedged. 
C) When an FI hedges a cash asset on a direct dollar-for-dollar basis with a forward or futures contract. 
D) When an FI manager wants to insulate the value of the institution's bond portfolio fully against a rise in interest rates. 
A) When an FI, attempting to lock in cost of funds to protect itself against a rise in short-term interest rates, takes a short position in futures contracts on CDs. 
B) FI manager trying to pick a futures contract whose underlying deliverable asset is not matched to the asset position being hedged. 
C) When an FI hedges a cash asset on a direct dollar-for-dollar basis with a forward or futures contract. 
D) When an FI manager wants to insulate the value of the institution's bond portfolio fully against a rise in interest rates.

Question 6

Which of the following statements is true?

Accepted Answer

A) A very actively traded spot contract is the spot rate agreement (SR
A) . 
B) A very actively traded spot contract is the futures rate agreement (FR
A) . 
C) A very actively traded forward contract is the forward rate agreement (FR
A) , commonly used to lock in the interest rate on shorter-term borrowings. 
D) A very actively traded spot contract is the option rate agreement (OR
A) , commonly used to grant the right to buy or sell an asset at a specified price. 
A) A very actively traded spot contract is the spot rate agreement (SR
A) . 
B) A very actively traded spot contract is the futures rate agreement (FR
A) . 
C) A very actively traded forward contract is the forward rate agreement (FR
A) , commonly used to lock in the interest rate on shorter-term borrowings. 
D) A very actively traded spot contract is the option rate agreement (OR
A) , commonly used to grant the right to buy or sell an asset at a specified price.

Question 7

Off-market swaps are swaps that are have non-standard terms that require one party to compensate another so the swap can be tailored to the needs of the transacting parties, compensation is usually in the form of an upfront fee or payment.

Accepted Answer

A) True 
 B)False

Question 8

An agreement between a buyer and a seller at time 0 where the seller of an asset agrees to deliver an asset immediately and the buyer agrees to pay for the asset immediately is the characteristic of a:

Accepted Answer

A) spot contract. 
B) forward contract. 
C) futures contract. 
D) put options contract. 
A) spot contract. 
B) forward contract. 
C) futures contract. 
D) put options contract.

Question 9

Which of the following statements is true?

Accepted Answer

A) Using a futures or forward contract to hedge a specific asset or liability risk is called macro-hedging. 
B) Using a futures or forward contract to hedge a specific asset or liability risk is called micro-hedging. 
C) Using a futures or forward contract to hedge a specific asset or liability risk is called asset- or liability-specific hedging. 
D) Using a futures or forward contract to hedge a specific asset or liability risk is called naïve hedging. 
A) Using a futures or forward contract to hedge a specific asset or liability risk is called macro-hedging. 
B) Using a futures or forward contract to hedge a specific asset or liability risk is called micro-hedging. 
C) Using a futures or forward contract to hedge a specific asset or liability risk is called asset- or liability-specific hedging. 
D) Using a futures or forward contract to hedge a specific asset or liability risk is called naïve hedging.

Question 10

It is possible to create a synthetic fixed-rate position from floating rate instruments using futures contracts.Forward contracts cannot be used.

Accepted Answer

A) True 
 B)False

Question 11

All call options are eventually exercised and the underlying asset must be delivered.

Accepted Answer

A) True 
 B)False

Question 12

The benefit of a futures exchange is:

Accepted Answer

A) elimination of customer risk exposure. 
B) provision of clearing services. 
C) guarantee of trading volume. 
D) intervention on the trader's behalf with government regulators. 
A) elimination of customer risk exposure. 
B) provision of clearing services. 
C) guarantee of trading volume. 
D) intervention on the trader's behalf with government regulators.

Question 13

In a 'plain Vanilla swap' the swap buyer agrees to make:

Accepted Answer

A) fixed interest payments to the swap seller on a loan that is originally floating, but which is then modified through the use of derivatives to turn it into a fixed-rate loan. 
B) fixed interest payments to the swap seller on a loan that is originally fixed, but which is then modified through the use of derivatives to turn it into a floating-rate loan. 
C) floating interest payments to the swap seller on a loan that is originally floating, but which is then modified through the use of derivatives to turn it into a fixed loan. 
D) None of the listed options are correct. 
A) fixed interest payments to the swap seller on a loan that is originally floating, but which is then modified through the use of derivatives to turn it into a fixed-rate loan. 
B) fixed interest payments to the swap seller on a loan that is originally fixed, but which is then modified through the use of derivatives to turn it into a floating-rate loan. 
C) floating interest payments to the swap seller on a loan that is originally floating, but which is then modified through the use of derivatives to turn it into a fixed loan. 
D) None of the listed options are correct.

Question 14

Assume that the price paid by the buyer of a forward is $82 000 and further assume that the spot price of purchasing the hedged underlying asset at delivery date is $85 000.What is the result for the forward seller?

Accepted Answer

A) A $3000 profit. 
B) A $3000 loss. 
C) The answer depends on how the forward price develops over time. 
D) Too little information to answer the question. 
A) A $3000 profit. 
B) A $3000 loss. 
C) The answer depends on how the forward price develops over time. 
D) Too little information to answer the question.

Question 15

An undeliverable futures contract refers to a futures contract in which:

Accepted Answer

A) there is no physical settlement. 
B) there is no mandatory cash settlement. 
C) one of the parties is unable to deliver. 
D) money has been lost due to a party having chosen an unfavourable hedging strategy. 
A) there is no physical settlement. 
B) there is no mandatory cash settlement. 
C) one of the parties is unable to deliver. 
D) money has been lost due to a party having chosen an unfavourable hedging strategy.

Question 16

Partially hedging the gap or individual assets and liabilities is referred to as?

Accepted Answer

A) hedging arbitrarily 
B) hedging selectively 
C) hedging partially 
D) hedging naively 
A) hedging arbitrarily 
B) hedging selectively 
C) hedging partially 
D) hedging naively

Question 17

In a put option, the purchaser of the bond option is committed to handing over the specified bond at a specified time.

Accepted Answer

A) True 
 B)False

Question 18

A forward contract:

Accepted Answer

A) has more credit risk than a futures contract. 
B) is more standardised than a futures contract. 
C) is marked to market more frequently than a futures contract. 
D) has a shorter time to delivery than a futures contract. 
E) is less risky than a futures contract. 
A) has more credit risk than a futures contract. 
B) is more standardised than a futures contract. 
C) is marked to market more frequently than a futures contract. 
D) has a shorter time to delivery than a futures contract. 
E) is less risky than a futures contract.

Question 19

Which of the following best describes a derivative contract?

Accepted Answer

A) Contractual commitments to make a loan up to a stated amount at a given interest rate in the future. 
B) Contingent guarantees sold by an FI to underwrite the performance of the buyer of the guaranty. 
C) Agreement between two parties to exchange a standard quantity of an asset at a predetermined price at a specified date in the future. 
D) Trading in securities prior to their actual issue. 
A) Contractual commitments to make a loan up to a stated amount at a given interest rate in the future. 
B) Contingent guarantees sold by an FI to underwrite the performance of the buyer of the guaranty. 
C) Agreement between two parties to exchange a standard quantity of an asset at a predetermined price at a specified date in the future. 
D) Trading in securities prior to their actual issue.

Question 20

A company is considering using futures contracts to hedge an identified interest rate exposure on its debt facilities.However, it is concerned about the impact of basis risk.All of the following statements regarding basis risk are correct, except:

Accepted Answer

A) basis risk is the difference between prices in the physical market and the price of the relevant futures market contract. 
B) the existence of basis risk removes the opportunity for a perfect borrowing hedge. 
C) initial basis will be evident while the market is of the view that physical market prices will remain stable. 
D) final basis will exist where a futures contract is used to hedge a risk associated with a different physical market product. 
A) basis risk is the difference between prices in the physical market and the price of the relevant futures market contract. 
B) the existence of basis risk removes the opportunity for a perfect borrowing hedge. 
C) initial basis will be evident while the market is of the view that physical market prices will remain stable. 
D) final basis will exist where a futures contract is used to hedge a risk associated with a different physical market product.

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

An Australian bank must pay US$10 million in 90 days.It wishes to hedge the risk in the futures market.To do so, the bank should:

Which of the following is an example of microhedging asset-side portfolio risk?

Which of the following statements is true?

Off-market swaps are swaps that are have non-standard terms that require one party to compensate another so the swap can be tailored to the needs of the transacting parties, compensation is usually in the form of an upfront fee or payment.

An agreement between a buyer and a seller at time 0 where the seller of an asset agrees to deliver an asset immediately and the buyer agrees to pay for the asset immediately is the characteristic of a:

Which of the following statements is true?

It is possible to create a synthetic fixed-rate position from floating rate instruments using futures contracts.Forward contracts cannot be used.

All call options are eventually exercised and the underlying asset must be delivered.

The benefit of a futures exchange is:

In a 'plain Vanilla swap' the swap buyer agrees to make:

Assume that the price paid by the buyer of a forward is $82 000 and further assume that the spot price of purchasing the hedged underlying asset at delivery date is $85 000.What is the result for the forward seller?

An undeliverable futures contract refers to a futures contract in which:

Partially hedging the gap or individual assets and liabilities is referred to as?

In a put option, the purchaser of the bond option is committed to handing over the specified bond at a specified time.

A forward contract:

Which of the following best describes a derivative contract?

A company is considering using futures contracts to hedge an identified interest rate exposure on its debt facilities.However, it is concerned about the impact of basis risk.All of the following statements regarding basis risk are correct, except:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: The Duration Model

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 7: Managing Interest Rate Risk Using Off Balance Sheet Instruments

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

An Australian bank must pay US$10 million in 90 days.It wishes to hedge the risk in the futures market.To do so, the bank should:

Which of the following is an example of microhedging asset-side portfolio risk?

Which of the following statements is true?

Off-market swaps are swaps that are have non-standard terms that require one party to compensate another so the swap can be tailored to the needs of the transacting parties, compensation is usually in the form of an upfront fee or payment.

An agreement between a buyer and a seller at time 0 where the seller of an asset agrees to deliver an asset immediately and the buyer agrees to pay for the asset immediately is the characteristic of a:

Which of the following statements is true?

It is possible to create a synthetic fixed-rate position from floating rate instruments using futures contracts.Forward contracts cannot be used.

All call options are eventually exercised and the underlying asset must be delivered.

The benefit of a futures exchange is:

In a 'plain Vanilla swap' the swap buyer agrees to make:

Assume that the price paid by the buyer of a forward is $82 000 and further assume that the spot price of purchasing the hedged underlying asset at delivery date is $85 000.What is the result for the forward seller?

An undeliverable futures contract refers to a futures contract in which:

Partially hedging the gap or individual assets and liabilities is referred to as?

In a put option, the purchaser of the bond option is committed to handing over the specified bond at a specified time.

A forward contract:

Which of the following best describes a derivative contract?

A company is considering using futures contracts to hedge an identified interest rate exposure on its debt facilities.However, it is concerned about the impact of basis risk.All of the following statements regarding basis risk are correct, except:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: The Duration Model

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters