Question 1

Which of the following would require a short hedge?

Accepted Answer

A) The bank has a positive gap in three months. 
B) The bank anticipates receiving the repayment of a $30 million loan in 2 months.The funds will be rolled over immediately. 
C) The bank is going to invest a large amount of money in Treasury bills. 
D) The bank has a negative duration gap. 
E) The bank plans to roll variable-rate CDs over into fixed-rate CDs. 
A) The bank has a positive gap in three months. 
B) The bank anticipates receiving the repayment of a $30 million loan in 2 months.The funds will be rolled over immediately. 
C) The bank is going to invest a large amount of money in Treasury bills. 
D) The bank has a negative duration gap. 
E) The bank plans to roll variable-rate CDs over into fixed-rate CDs.

Question 2

Your bank has a positive GAP and wants to hedge against changes in interest rates.Would a collar or reverse collar serve as a better hedge? Why?

Accepted Answer

A positive GAP in banking refers to a si

Question 3

If a hedger is owns the underling security, he will be long the futures position.

Accepted Answer

A) True 
 B)False

Question 4

Financial futures are:

Accepted Answer

A) a commitment between two parties to trade a financial instrument at a certain rate at a specified time in the future. 
B) A call option on a standardized asset at a certain price at a specified time in the future. 
C) A put option on a standardized asset at a certain price at a specified time in the future. 
D) a commitment between two parties on the price of a standardized financial asset with the final settlement specified time in the future. 
E) b.and c. 
A) a commitment between two parties to trade a financial instrument at a certain rate at a specified time in the future. 
B) A call option on a standardized asset at a certain price at a specified time in the future. 
C) A put option on a standardized asset at a certain price at a specified time in the future. 
D) a commitment between two parties on the price of a standardized financial asset with the final settlement specified time in the future. 
E) b.and c.

Question 5

Which of the following executes trades for other parties?

Accepted Answer

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

Question 6

A trader buys a 90-day Eurodollar futures contract at 95.25.The next day, interest rates rise 5.25%.Which of the following is true? Assume that the initial and maintenance margins are $5,000.

Accepted Answer

A) The trader would have to deposit an additional $62,500 into her account. 
B) The trader would have to deposit an additional $1,500 into her account. 
C) The trader would have to deposit an additional $625 into her account. 
D) The trader could withdraw $1,250 from her margin account. 
E) The trader could withdraw $625 from her margin account. 
A) The trader would have to deposit an additional $62,500 into her account. 
B) The trader would have to deposit an additional $1,500 into her account. 
C) The trader would have to deposit an additional $625 into her account. 
D) The trader could withdraw $1,250 from her margin account. 
E) The trader could withdraw $625 from her margin account.

Question 7

A reverse collar consists of:

Accepted Answer

A) buying an interest rate floor and an interest rate cap. 
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 floor and an interest rate cap. 
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 8

Discuss the difference between speculating and hedging.

Accepted Answer

Speculating and hedging are two differen

Question 9

When the net profit on both the futures and cash position equals zero, this is known as a(n):

Accepted Answer

A) cross hedge. 
B) perfect hedge. 
C) imperfect hedge. 
D) basis hedge. 
E) return hedge. 
A) cross hedge. 
B) perfect hedge. 
C) imperfect hedge. 
D) basis hedge. 
E) return hedge.

Question 10

Which of the following would generally not be considered a speculator?

Accepted Answer

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

Question 11

How can a bank hedge when it makes 1-year fixed-rate loans and finances them with 3-month floating-rate deposits?

Accepted Answer

A) Buy Eurodollar futures contracts. 
B) Sell put options on Eurodollar futures contracts. 
C) Sell Eurodollar futures contracts. 
D) Buy call options on Eurodollar futures contacts. 
E) b.and c. 
A) Buy Eurodollar futures contracts. 
B) Sell put options on Eurodollar futures contracts. 
C) Sell Eurodollar futures contracts. 
D) Buy call options on Eurodollar futures contacts. 
E) b.and c.

Question 12

How many 90-day Eurodollar futures contracts should a bank purchase to hedge the roll-over of a 6-month, $20 million loan if loan rates and Eurodollar rates have the same volatility?

Accepted Answer

A) 2 contracts 
B) 4 contracts 
C) 10 contracts 
D) 20 contracts 
E) 40 contracts 
A) 2 contracts 
B) 4 contracts 
C) 10 contracts 
D) 20 contracts 
E) 40 contracts

Question 13

Which of the following is correct about futures contracts?

Accepted Answer

A) Buyers of futures contracts make a profit when prices fall. 
B) Buyers of futures contracts make a profit when interest rates rise. 
C) Sellers of futures contracts make a profit when prices fall. 
D) Sellers of futures contracts make a profit when prices rise. 
E) a.and d. 
A) Buyers of futures contracts make a profit when prices fall. 
B) Buyers of futures contracts make a profit when interest rates rise. 
C) Sellers of futures contracts make a profit when prices fall. 
D) Sellers of futures contracts make a profit when prices rise. 
E) a.and d.

Question 14

Give an example where an interest rate swap would benefit both counterparties.

Accepted Answer

An interest rate swap is a financial der

Question 15

Banks use financial derivatives for all of the following except:

Accepted Answer

A) hedge asset yields. 
B) adjust maturities by creating synthetic liabilities. 
C) adjust the sensitivity of earnings to changes in interest rates. 
D) lock-in the cost of liabilities. 
E) Banks use financial derivatives for all of the above. 
A) hedge asset yields. 
B) adjust maturities by creating synthetic liabilities. 
C) adjust the sensitivity of earnings to changes in interest rates. 
D) lock-in the cost of liabilities. 
E) Banks use financial derivatives for all of the above.

Question 16

An instrument that derives its value from another underlying asset is known as a(n):

Accepted Answer

A) hedge. 
B) derivative. 
C) basis. 
D) backdate agreement. 
E) original document. 
A) hedge. 
B) derivative. 
C) basis. 
D) backdate agreement. 
E) original document.

Question 17

A bank anticipates it will need to borrow funds in the Eurodollar market in the future.It hedges by selling futures contracts.If rates decline, which of the following is true?

Accepted Answer

A) The bank will profit on the futures contract. 
B) The bank will profit in the cash market. 
C) The bank will have locked in a low cost of borrowing. 
D) The bank will lose in the cash market. 
E) a.and d. 
A) The bank will profit on the futures contract. 
B) The bank will profit in the cash market. 
C) The bank will have locked in a low cost of borrowing. 
D) The bank will lose in the cash market. 
E) a.and d.

Question 18

Derivatives can be a cost-effective way to manage interest rate risk.

Accepted Answer

A) True 
 B)False

Question 19

The value of a basis point for 90-day Eurodollar Time Deposit futures contract is:

Accepted Answer

A) $10. 
B) $100. 
C) $25. 
D) $250. 
E) $500. 
A) $10. 
B) $100. 
C) $25. 
D) $250. 
E) $500.

Question 20

What is a microhedge?

Accepted Answer

A) It is a hedge of the bank's aggregate portfolio. 
B) It is a hedge using just one type of futures contract. 
C) It is the hedge of a specific asset or liability for which the bank is exposed to interest rate risk. 
D) It is a hedge using two or more types of futures contracts. 
E) It is a has that has a duration of less than one month. 
A) It is a hedge of the bank's aggregate portfolio. 
B) It is a hedge using just one type of futures contract. 
C) It is the hedge of a specific asset or liability for which the bank is exposed to interest rate risk. 
D) It is a hedge using two or more types of futures contracts. 
E) It is a has that has a duration of less than one month.

Which of the following would require a short hedge?

Your bank has a positive GAP and wants to hedge against changes in interest rates.Would a collar or reverse collar serve as a better hedge? Why?

If a hedger is owns the underling security, he will be long the futures position.

Financial futures are:

Which of the following executes trades for other parties?

A trader buys a 90-day Eurodollar futures contract at 95.25.The next day, interest rates rise 5.25%.Which of the following is true? Assume that the initial and maintenance margins are $5,000.

A reverse collar consists of:

Discuss the difference between speculating and hedging.

When the net profit on both the futures and cash position equals zero, this is known as a(n):

Which of the following would generally not be considered a speculator?

How can a bank hedge when it makes 1-year fixed-rate loans and finances them with 3-month floating-rate deposits?

How many 90-day Eurodollar futures contracts should a bank purchase to hedge the roll-over of a 6-month, $20 million loan if loan rates and Eurodollar rates have the same volatility?

Which of the following is correct about futures contracts?

Give an example where an interest rate swap would benefit both counterparties.

Banks use financial derivatives for all of the following except:

An instrument that derives its value from another underlying asset is known as a(n):

A bank anticipates it will need to borrow funds in the Eurodollar market in the future.It hedges by selling futures contracts.If rates decline, which of the following is true?

Derivatives can be a cost-effective way to manage interest rate risk.

The value of a basis point for 90-day Eurodollar Time Deposit futures contract is:

What is a microhedge?

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

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Exam 9: Using Derivatives to Manage Interest Rate Risk

Which of the following would require a short hedge?

Your bank has a positive GAP and wants to hedge against changes in interest rates.Would a collar or reverse collar serve as a better hedge? Why?

If a hedger is owns the underling security, he will be long the futures position.

Financial futures are:

Which of the following executes trades for other parties?

A trader buys a 90-day Eurodollar futures contract at 95.25.The next day, interest rates rise 5.25%.Which of the following is true? Assume that the initial and maintenance margins are $5,000.

A reverse collar consists of:

Discuss the difference between speculating and hedging.

When the net profit on both the futures and cash position equals zero, this is known as a(n):

Which of the following would generally not be considered a speculator?

How can a bank hedge when it makes 1-year fixed-rate loans and finances them with 3-month floating-rate deposits?

How many 90-day Eurodollar futures contracts should a bank purchase to hedge the roll-over of a 6-month, $20 million loan if loan rates and Eurodollar rates have the same volatility?

Which of the following is correct about futures contracts?

Give an example where an interest rate swap would benefit both counterparties.

Banks use financial derivatives for all of the following except:

An instrument that derives its value from another underlying asset is known as a(n):

A bank anticipates it will need to borrow funds in the Eurodollar market in the future.It hedges by selling futures contracts.If rates decline, which of the following is true?

Derivatives can be a cost-effective way to manage interest rate risk.

The value of a basis point for 90-day Eurodollar Time Deposit futures contract is:

What is a microhedge?

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