Question 1

In order to estimate the forward rate for year 1.5 one needs

Accepted Answer

A)  I, III 
B)  I, II, III 
C)  I, II 
D)  II, III
I.1-year zero
II.1.5-year zero
III.2-year zero 
A)  I, III 
B)  I, II, III 
C)  I, II 
D)  II, III
I.1-year zero
II.1.5-year zero
III.2-year zero C

Question 2

Forward contracts:

Accepted Answer

A)  trade in an open market. 
B)  establish a price paid tomorrow for something today. 
C)  offer delivery of a commodity by sellers in the future. 
D)  are traded on OTC markets. 
A)  trade in an open market. 
B)  establish a price paid tomorrow for something today. 
C)  offer delivery of a commodity by sellers in the future. 
D)  are traded on OTC markets. D

Question 3

Use the following statements to answer this question:

Accepted Answer

A)  I is correct, II is incorrect 
B)  I and II are correct 
C)  I and II are incorrect 
D)  I is incorrect, and II is correct
I.Credit default swaps (CDS)is a default premium on debt issue.
II.Credit default swaps (CDS)are insurance on the default of issuers of the debt. 
A)  I is correct, II is incorrect 
B)  I and II are correct 
C)  I and II are incorrect 
D)  I is incorrect, and II is correct
I.Credit default swaps (CDS)is a default premium on debt issue.
II.Credit default swaps (CDS)are insurance on the default of issuers of the debt. D

Question 4

An exchange of an interest rate return for the total return on an equity index,plus or minus a spread is called:

Accepted Answer

A)  a total return swap. 
B)  an interest rate swap. 
C)  a credit default swap. 
D)  a return forward. 
A)  a total return swap. 
B)  an interest rate swap. 
C)  a credit default swap. 
D)  a return forward.

Question 5

Assume the following: underlying asset spot $200,storage cost $20,and financing costs 5% per year.Calculate the cost of carry.

Accepted Answer

A)  $20 
B)  0.15 
C)  0.105 
D)  0.10 
A)  $20 
B)  0.15 
C)  0.105 
D)  0.10

Question 6

Montreal First Bank is selling forward contracts on the CAD/USD market.What exchange rate will they require for a three-month forward rate,if the spot rate is C$0.9800/USD,and the interest rates are 3% and 2.5% in Canada and the US respectively?

Accepted Answer

A)  C$0.9752 
B)  C$0.9788 
C)  C$0.9812 
D)  C$0.9800 
A)  C$0.9752 
B)  C$0.9788 
C)  C$0.9812 
D)  C$0.9800

Question 7

Explain how derivatives led to the worst recession in the post second world war era.

Accepted Answer

The excessive use of derivatives caused

Question 8

Which of the following are classified as investment for the purpose of futures contracts?

Accepted Answer

A)  I, II 
B)  II, III 
C)  I, III 
D)  I, II, III 
E)  IV
I.Silver
II.Wheat
III.Weather derivatives
IV.Bond 
A)  I, II 
B)  II, III 
C)  I, III 
D)  I, II, III 
E)  IV
I.Silver
II.Wheat
III.Weather derivatives
IV.Bond

Question 9

Assume the following: Current 1-year Japanese interest rate 3.0%; Current 1-year Canadian interest rate 5.0%; Current spot rate C$0.01 per yen.Estimate the 1-year forward exchange rate using interest rate parity.

Accepted Answer

A)  C$0.0102 per yen 
B)  C$0.0098 per yen 
C)  C$1.0194 per yen 
D)  C$0.9810 per yen 
A)  C$0.0102 per yen 
B)  C$0.0098 per yen 
C)  C$1.0194 per yen 
D)  C$0.9810 per yen

Question 10

Find the forward price for one forward contract for gold that is selling for $1,449 spot,if the storage cost is $10 for the year and financing cost is 10% per year.

Accepted Answer

c = [ (0.10 x $1,449

Question 11

What is the "cost of carry" equivalent for exchange rates?

Accepted Answer

A)  The forward rate 
B)  The interest rate in the host country 
C)  The interest rate in the foreign country 
D)  The interest rate difference between the host and foreign countries 
A)  The forward rate 
B)  The interest rate in the host country 
C)  The interest rate in the foreign country 
D)  The interest rate difference between the host and foreign countries

Question 12

Use the following statements to answer this question:

Accepted Answer

A)  I and II are correct 
B)  I and II are incorrect 
C)  I is correct and II is incorrect 
D)  I is incorrect and II is correct
I.Forward contacts are more affected by credit risk than future contracts.
II.Clearinghouses improve the level of risk associated with futures transactions. 
A)  I and II are correct 
B)  I and II are incorrect 
C)  I is correct and II is incorrect 
D)  I is incorrect and II is correct
I.Forward contacts are more affected by credit risk than future contracts.
II.Clearinghouses improve the level of risk associated with futures transactions.

Question 13

What is the open interest in the market above?

Accepted Answer

A)  6 
B)  12 
C)  0 
D)  more information required 
A)  6 
B)  12 
C)  0 
D)  more information required

Question 14

A tailor-made contract with a price that is established today for future delivery is called a ___________.

Accepted Answer

A)  futures contract 
B)  forward contract 
C)  spot contract 
D)  call option 
A)  futures contract 
B)  forward contract 
C)  spot contract 
D)  call option

Question 15

Montreal First Bank is selling forward contracts on the USD/CAD exchange market.What exchange rate would they require for a three-month forward rate,if the spot rate is C$ 1.0200/USD and the interest rates are 3% and 2.5% in Canada and the US respectively?

Accepted Answer

A)  C$1.0249 
B)  C$1.0213 
C)  C$1.0187 
D)  C$1.0200 
A)  C$1.0249 
B)  C$1.0213 
C)  C$1.0187 
D)  C$1.0200

Question 16

What is a relatively small (in terms of the contract value)deposit made with the clearinghouse?

Accepted Answer

A)  Maintenance margin 
B)  Margin call 
C)  Initial margin 
D)  Daily resettlement 
A)  Maintenance margin 
B)  Margin call 
C)  Initial margin 
D)  Daily resettlement

Question 17

The dollar amount upon which a contract is valued is referred to as:

Accepted Answer

A)  settlement price 
B)  initial margin 
C)  strike price 
D)  notional amount 
A)  settlement price 
B)  initial margin 
C)  strike price 
D)  notional amount

Question 18

Magdalena assumes a US$ 2,000 short position in a 1-year US forward contract
(F = C$1.0312 per US).If the spot rate in one year is (a)C$1.04 per US (b)C$1.03 per US,what will her profit (loss)be in each case?

Accepted Answer

A)  - C$8.8, 1.2 
B)  - C$20, 2.4 
C)  C$17.6, - 2.4 
D)  - C$17.6, 2.4 
A)  - C$8.8, 1.2 
B)  - C$20, 2.4 
C)  C$17.6, - 2.4 
D)  - C$17.6, 2.4

Question 19

David estimated a six-month forward rate of C$1.01 per US$.The six-month US$ interest rate is currently 4%.If David's estimate is based on IRP,what was the observed current six-month Canadian interest rate,if the spot rate is C$1.02 per US$?

Accepted Answer

A)  5.03% 
B)  2.03% 
C)  2.98% 
D)  2.05% 
A)  5.03% 
B)  2.03% 
C)  2.98% 
D)  2.05%

Question 20

Profit from a short position in a forward is:

Accepted Answer

A)  (X - ST) 
B)  [ST - F] × n 
C)  (ST - X) 
D)  [F - ST] × n 
A)  (X - ST) 
B)  [ST - F] × n 
C)  (ST - X) 
D)  [F - ST] × n

Exam 11: Forwards,futures,and Swaps

In order to estimate the forward rate for year 1.5 one needs

Forward contracts:

Use the following statements to answer this question:

An exchange of an interest rate return for the total return on an equity index,plus or minus a spread is called:

Assume the following: underlying asset spot $200,storage cost $20,and financing costs 5% per year.Calculate the cost of carry.

Montreal First Bank is selling forward contracts on the CAD/USD market.What exchange rate will they require for a three-month forward rate,if the spot rate is C$0.9800/USD,and the interest rates are 3% and 2.5% in Canada and the US respectively?

Explain how derivatives led to the worst recession in the post second world war era.

Which of the following are classified as investment for the purpose of futures contracts?

Assume the following: Current 1-year Japanese interest rate 3.0%; Current 1-year Canadian interest rate 5.0%; Current spot rate C$0.01 per yen.Estimate the 1-year forward exchange rate using interest rate parity.

Find the forward price for one forward contract for gold that is selling for $1,449 spot,if the storage cost is $10 for the year and financing cost is 10% per year.

What is the "cost of carry" equivalent for exchange rates?

Use the following statements to answer this question:

What is the open interest in the market above?

A tailor-made contract with a price that is established today for future delivery is called a ___________.

Montreal First Bank is selling forward contracts on the USD/CAD exchange market.What exchange rate would they require for a three-month forward rate,if the spot rate is C$ 1.0200/USD and the interest rates are 3% and 2.5% in Canada and the US respectively?

What is a relatively small (in terms of the contract value)deposit made with the clearinghouse?

The dollar amount upon which a contract is valued is referred to as:

Magdalena assumes a US$ 2,000 short position in a 1-year US forward contract (F = C$1.0312 per US).If the spot rate in one year is (a)C$1.04 per US (b)C$1.03 per US,what will her profit (loss)be in each case?

David estimated a six-month forward rate of C$1.01 per US$.The six-month US$ interest rate is currently 4%.If David's estimate is based on IRP,what was the observed current six-month Canadian interest rate,if the spot rate is C$1.02 per US$?

Profit from a short position in a forward is:

An Introduction to Finance

Business Corporatefinance

Financial Statements

Financial Statement Analysis and Forecasting

Time Value of Money

Bond Valuation and Interest Rates

Equity Valuation

Risk, return, and Portfolio Theory

The Capital Asset Pricing Model Capm

Market Efficiency

Options

Capital Budgeting, risk Considerations, and Other Special Issues

Cash Flow Estimation and Capital Budgeting Decisions

Mergers and Acquisitions

Leasing

Investment Banking and Securities Law

Debt Instruments

Equity and Hybrid Instruments

Cost of Capital

Capital Structure Decisions

Dividend Policy

Working Capital Management: General Issues

Working Capital Management: Current Assets and Current Liabilities

Filters