Question 1

Swap participants are subject to:

Accepted Answer

A) margin requirements. 
B) Federal Reserve regulation E. 
C) exchange performance. 
D) counterparty risk. 
E) All of the above. 
A) margin requirements. 
B) Federal Reserve regulation E. 
C) exchange performance. 
D) counterparty risk. 
E) All of the above. D

Question 2

Banks can often replicate on-balance sheet transactions with off-balance sheet contracts.

Accepted Answer

A) True 
 B)False  True

Question 3

____________ of financial futures contracts require physical delivery.

Accepted Answer

A) Nearly 100% 
B) Approximately 75% 
C) Approximately 50% 
D) Approximately 25% 
E) Less than 1% 
A) Nearly 100% 
B) Approximately 75% 
C) Approximately 50% 
D) Approximately 25% 
E) Less than 1% E

Question 4

An investor anticipates she will have funds to invest in the T-Bill market.If she hedges by buying futures contracts and rates decline, which of the following is true?

Accepted Answer

A) The investor will profit on the futures contract. 
B) The investor will profit in the spot market. 
C) The investor will have locked in a minimum 10% return. 
D) The investor will lose in the spot market. 
E) a.and d. 
A) The investor will profit on the futures contract. 
B) The investor will profit in the spot market. 
C) The investor will have locked in a minimum 10% return. 
D) The investor will lose in the spot market. 
E) a.and d.

Question 5

In an interest rate swap, the notional principle:

Accepted Answer

A) is the difference in the fixed and floating interest rates. 
B) is the difference in the fixed and floating interest payments. 
C) is used to calculate the FRA basis. 
D) is used to calculate the value of the interest payments. 
E) is used to calculate the hedge ratio. 
A) is the difference in the fixed and floating interest rates. 
B) is the difference in the fixed and floating interest payments. 
C) is used to calculate the FRA basis. 
D) is used to calculate the value of the interest payments. 
E) is used to calculate the hedge ratio.

Question 6

Which of the following is not true of forward rate agreements (FRA)?

Accepted Answer

A) The two counterparties to an FRA agree to a notional principal. 
B) FRAs are traded on an organized exchange. 
C) The buyer of a FRA agrees to pay a fixed-rate coupon payment. 
D) FRAs are not as liquid as most futures contracts. 
E) FRAs can be used to manage interest rate risk. 
A) The two counterparties to an FRA agree to a notional principal. 
B) FRAs are traded on an organized exchange. 
C) The buyer of a FRA agrees to pay a fixed-rate coupon payment. 
D) FRAs are not as liquid as most futures contracts. 
E) FRAs can be used to manage interest rate risk.

Question 7

When you own the underlying security, your spot position is _______.

Accepted Answer

A) flat. 
B) long. 
C) short. 
D) is also known as your cash position. 
E) b.and d. 
A) flat. 
B) long. 
C) short. 
D) is also known as your cash position. 
E) b.and d.

Question 8

A long hedge would be appropriate for a bank that wants to reduce its cash market risk associated with .a decline in interest rates.

Accepted Answer

A) True 
 B)False

Question 9

Most interest rate swaps are set up for:

Accepted Answer

A) less than 6 months. 
B) 6 months to 1 year. 
C) 1 year to 10 years. 
D) 11 to 20 years. 
E) over 20 years. 
A) less than 6 months. 
B) 6 months to 1 year. 
C) 1 year to 10 years. 
D) 11 to 20 years. 
E) over 20 years.

Question 10

An interest rate collar consists of:

Accepted Answer

A) buying an interest rate cap and selling an interest rate floor. 
B) buying an interest rate floor and selling an interest rate cap. 
C) selling an interest rate floor and buying an interest rate cap. 
D) buying a call option and selling a futures contract. 
E) selling a put option and buying a futures contract. 
A) buying an interest rate cap and selling an interest rate floor. 
B) buying an interest rate floor and selling an interest rate cap. 
C) selling an interest rate floor and buying an interest rate cap. 
D) buying a call option and selling a futures contract. 
E) selling a put option and buying a futures contract.

Question 11

Discuss the relative advantages and disadvantages of using futures versus forward contracts.

Accepted Answer

Futures and forward contracts are both f

Question 12

Which of the following is not an advantage of the swap market over the futures market for managing interest rate risk?

Accepted Answer

A) Getting out of a contract is easier in the swap market. 
B) With a swap contract, you can hedge away longer-term risks than with futures contracts. 
C) The notional amount of the swap can be set to any value acceptable to both trading parties. 
D) All of the above are advantages of the swap market over the futures market. 
E) a.and c.are not advantages of the swap market over the futures market. 
A) Getting out of a contract is easier in the swap market. 
B) With a swap contract, you can hedge away longer-term risks than with futures contracts. 
C) The notional amount of the swap can be set to any value acceptable to both trading parties. 
D) All of the above are advantages of the swap market over the futures market. 
E) a.and c.are not advantages of the swap market over the futures market.

Question 13

Which of the following is not a difference between futures and forward contracts?

Accepted Answer

A) Futures contracts are marked-to-market daily, while futures contracts are not. 
B) Buyers and sellers deal directly with each other on forward contracts but go through and exchange with futures contracts. 
C) Futures contracts are standardized, forward contracts generally are not. 
D) Delivery rarely occurs on futures contracts but generally occurs with forward contracts. 
E) All of the above are differences between futures and forward contracts. 
A) Futures contracts are marked-to-market daily, while futures contracts are not. 
B) Buyers and sellers deal directly with each other on forward contracts but go through and exchange with futures contracts. 
C) Futures contracts are standardized, forward contracts generally are not. 
D) Delivery rarely occurs on futures contracts but generally occurs with forward contracts. 
E) All of the above are differences between futures and forward contracts.

Question 14

Which of the following is not true regarding the basis?

Accepted Answer

A) The basis systematically declines as expiration approaches. 
B) The basis must equal zero at expiration. 
C) The basis may not equal zero before expiration. 
D) The basis may be positive or negative. 
E) both b.and c.are not true regarding the basis. 
A) The basis systematically declines as expiration approaches. 
B) The basis must equal zero at expiration. 
C) The basis may not equal zero before expiration. 
D) The basis may be positive or negative. 
E) both b.and c.are not true regarding the basis.

Question 15

The daily settlement process that credits gains or deducts losses from a futures customer's account is called:

Accepted Answer

A) the variation margin. 
B) marking-to-market. 
C) the initial margin. 
D) the maintenance margin. 
E) the gain/loss ratio. 
A) the variation margin. 
B) marking-to-market. 
C) the initial margin. 
D) the maintenance margin. 
E) the gain/loss ratio.

Question 16

A bank can establish a floor on interest rate costs by:

Accepted Answer

A) buying a call option on Eurodollar futures. 
B) selling Eurodollar futures contracts. 
C) selling a call option on Eurodollar futures. 
D) a.and b. 
E) b.and c. 
A) buying a call option on Eurodollar futures. 
B) selling Eurodollar futures contracts. 
C) selling a call option on Eurodollar futures. 
D) a.and b. 
E) b.and c.

Question 17

Which of the following primarily takes futures positions that are outstanding for just minutes?

Accepted Answer

A) Scalper 
B) Local 
C) Day trader 
D) Position trader 
E) Commission broker 
A) Scalper 
B) Local 
C) Day trader 
D) Position trader 
E) Commission broker

Question 18

When you wish to own the underlying security, your spot position is _______.

Accepted Answer

A) fat. 
B) long. 
C) short. 
D) skinny. 
E) a.and c. 
A) fat. 
B) long. 
C) short. 
D) skinny. 
E) a.and c.

Question 19

A cross hedge often has greater risk then a perfect hedge because:

Accepted Answer

A) futures and cash interest rates are perfectly positively correlated. 
B) futures and cash interest rates are perfectly negatively correlated. 
C) cross hedging uses a contract based on the identical underlying asset. 
D) futures and cash interest rates may not move together. 
E) b.and d. 
A) futures and cash interest rates are perfectly positively correlated. 
B) futures and cash interest rates are perfectly negatively correlated. 
C) cross hedging uses a contract based on the identical underlying asset. 
D) futures and cash interest rates may not move together. 
E) b.and d.

Question 20

To buy a futures contract, one must post a(n):

Accepted Answer

A) maintenance margin. 
B) variation margin. 
C) market margin. 
D) initial margin. 
E) marked margin. 
A) maintenance margin. 
B) variation margin. 
C) market margin. 
D) initial margin. 
E) marked margin.

Swap participants are subject to:

Banks can often replicate on-balance sheet transactions with off-balance sheet contracts.

____________ of financial futures contracts require physical delivery.

An investor anticipates she will have funds to invest in the T-Bill market.If she hedges by buying futures contracts and rates decline, which of the following is true?

In an interest rate swap, the notional principle:

Which of the following is not true of forward rate agreements (FRA)?

When you own the underlying security, your spot position is _______.

A long hedge would be appropriate for a bank that wants to reduce its cash market risk associated with .a decline in interest rates.

Most interest rate swaps are set up for:

An interest rate collar consists of:

Discuss the relative advantages and disadvantages of using futures versus forward contracts.

Which of the following is not an advantage of the swap market over the futures market for managing interest rate risk?

Which of the following is not a difference between futures and forward contracts?

Which of the following is not true regarding the basis?

The daily settlement process that credits gains or deducts losses from a futures customer's account is called:

A bank can establish a floor on interest rate costs by:

Which of the following primarily takes futures positions that are outstanding for just minutes?

When you wish to own the underlying security, your spot position is _______.

A cross hedge often has greater risk then a perfect hedge because:

To buy a futures contract, one must post a(n):

Banking and the Financial Services Industry

Government Policies and Regulation

Analyzing Bank Performance

Managing Noninterest Income and Noninterest Expense

The Performance of Nontraditional Banking Companies

Pricing Fixed-Income Securities

Managing Interest Rate Risk: Gap and Earnings Sensitivity

Managing Interest Rate Risk: Economic Value of Equity

Funding the Bank

Managing Liquidity

The Effective Use of Capital

Overview of Credit Policy and Loan Characteristics

Evaluating Commercial Loan Requests and Managing Credit Risk

Evaluating Consumer Loans

Managing the Investment Portfolio

Global Banking Activities

Filters

Exam 9: Using Derivatives to Manage Interest Rate Risk

Swap participants are subject to:

Banks can often replicate on-balance sheet transactions with off-balance sheet contracts.

____________ of financial futures contracts require physical delivery.

An investor anticipates she will have funds to invest in the T-Bill market.If she hedges by buying futures contracts and rates decline, which of the following is true?

In an interest rate swap, the notional principle:

Which of the following is not true of forward rate agreements (FRA)?

When you own the underlying security, your spot position is _______.

A long hedge would be appropriate for a bank that wants to reduce its cash market risk associated with .a decline in interest rates.

Most interest rate swaps are set up for:

An interest rate collar consists of:

Discuss the relative advantages and disadvantages of using futures versus forward contracts.

Which of the following is not an advantage of the swap market over the futures market for managing interest rate risk?

Which of the following is not a difference between futures and forward contracts?

Which of the following is not true regarding the basis?

The daily settlement process that credits gains or deducts losses from a futures customer's account is called:

A bank can establish a floor on interest rate costs by:

Which of the following primarily takes futures positions that are outstanding for just minutes?

When you wish to own the underlying security, your spot position is _______.

A cross hedge often has greater risk then a perfect hedge because:

To buy a futures contract, one must post a(n):

Banking and the Financial Services Industry

Government Policies and Regulation

Analyzing Bank Performance

Managing Noninterest Income and Noninterest Expense

The Performance of Nontraditional Banking Companies

Pricing Fixed-Income Securities

Managing Interest Rate Risk: Gap and Earnings Sensitivity

Managing Interest Rate Risk: Economic Value of Equity

Funding the Bank

Managing Liquidity

The Effective Use of Capital

Overview of Credit Policy and Loan Characteristics

Evaluating Commercial Loan Requests and Managing Credit Risk

Evaluating Consumer Loans

Managing the Investment Portfolio

Global Banking Activities

Filters