Which of the following statements does NOT accurately reflect the relationship between securities and synthetic forward contracts?

Which of the following statements does NOT accurately reflect the relationship between securities and synthetic forward contracts?

A) Forward = stock - zero coupon bond
B) Zero coupon bond = stock - forward
C) Prepaid forward = forward - zero coupon bond
D) Stock = forward + zero coupon bond

Answer: C

When selecting among various put options with different strike prices, in order to hedge a long asset position, which of the following statements is true?

When selecting among various put options with different strike prices, in order to hedge a long asset position, which of the following statements is true?

A) Higher strike puts cost more and provide higher floors
B) Higher strike puts cost less and provide higher floors
C) Lower strike puts cost more and provide higher floors
D) Lower strike puts cost less and provide higher floors

Answer: A

All of the positions listed will benefit from a price decline, except:

All of the positions listed will benefit from a price decline, except:

A) Short put
B) Long put
C) Short call
D) Short stock

Answer: A

The spot price of the market index is $900. After 3 months, the market index is priced at $920. An investor has a long call option on the index at a strike price of $930. After 3 months, what is the investor's profit or loss?

The spot price of the market index is $900. After 3 months, the market index is priced at $920. An investor has a long call option on the index at a strike price of $930. After 3 months, what is the investor's profit or loss?

A) $10 loss
B) $0
C) $10 gain
D) $20 gain

Answer: B

The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. What is the profit or loss to a short position if the spot price of the market index rises to $920 by the expiration date?

The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. What is the profit or loss to a short position if the spot price of the market index rises to $920 by the expiration date?

A) $20 gain
B) $20 loss
C) $10 gain
D) $10 loss

Answer: C

A firm provides a service that benefits from decreasing employment. This firm has a risk exposure to macro event. All other variables being equal, which of the following derivative securities is the firm most likely use to hedge its exposure?

A firm provides a service that benefits from decreasing employment. This firm has a risk exposure to macro event. All other variables being equal, which of the following derivative securities is the firm most likely use to hedge its exposure?

A) Short position in an economic futures
B) Long position in an economic futures
C) Short position in an interest rate futures
D) Long position in an interest rate futures

Answer: B

According to trading volume data tabulated by the Wall Street Journal for April 15, 2010, which index futures contact experienced the highest total open interest?

According to trading volume data tabulated by the Wall Street Journal for April 15, 2010, which index futures contact experienced the highest total open interest?

A) DJ Industrial Average
B) S&P 500 Index
C) Mini S&P 500
D) Mini Nasdaq 100




Answer: C

Assume that you open a 100-share short position in Jiffy, Inc. common stock at the bid-ask price of $32.00 - $32.50. When you close your position, the bid-ask prices are $32.50 - $33.00. If you pay a commission rate of 0.5%, what is your profit or loss on the short investment?

Assume that you open a 100-share short position in Jiffy, Inc. common stock at the bid-ask price of $32.00 - $32.50. When you close your position, the bid-ask prices are $32.50 - $33.00. If you pay a commission rate of 0.5%, what is your profit or loss on the short investment?

A) $32.50 gain
B) $16.25 loss
C) $132.50 loss
D) $100.00 gain

Answer: C

Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of $32.00 - $32.50. When you sell, the bid-ask prices are $32.50 - $33.00. If you pay a commission rate of 0.5%, what is your profit or loss?

Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of $32.00 - $32.50. When you sell, the bid-ask prices are $32.50 - $33.00. If you pay a commission rate of 0.5%, what is your profit or loss?

A) $0
B) $16.25 loss
C) $32.50 gain
D) $32.50 loss



Answer: D

What is the cost of 100 shares of Jiffy, Inc. stock given that the bid-ask prices are $31.25 - $32.00 and a $15.00 commission per transaction exists?

What is the cost of 100 shares of Jiffy, Inc. stock given that the bid-ask prices are $31.25 - $32.00 and a $15.00 commission per transaction exists?

A) $3215
B) $3140
C) $3125
D) $3200

Answer: A

Select the family member who is offering the most diversification to the rest of the family.

Select the family member who is offering the most diversification to the rest of the family.

A) Dad works for General Motors
B) Mom works for Goodyear
C) Daughter works for Jiffy Lube
D) Son works for Eli Lilly & Company

Answer: D

All of the following are financially engineered products, except:

All of the following are financially engineered products, except:

A) Mortgage
B) Mortgage backed security
C) Interest only
D) Principal only

Answer: A

During the growing season, a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a(n):

During the growing season, a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a(n):

A) Hedger
B) Speculator
C) Arbitrager
D) None of the above

Answer: B

A mutual fund is engaged in the short term and temporary purchase of index futures, for purposes of minimizing its cash exposures. Which "use" most closely explains their actions?

A mutual fund is engaged in the short term and temporary purchase of index futures, for purposes of minimizing its cash exposures. Which "use" most closely explains their actions?

A) Risk management
B) Speculation
C) Reduced transaction costs
D) Regulatory arbitrage

Answer: C

Who from the following list would be considered a speculator by entering into a futures or options contract on commodities?

Who from the following list would be considered a speculator by entering into a futures or options contract on commodities?

A) Farmer
B) Corn delivery truck driver
C) Food manufacturer
D) None of the above



Answer: B

Which of the following is not a derivative instrument?

Which of the following is not a derivative instrument?

A) Contract to sell corn
B) Option agreement to buy land
C) Installment sales agreement
D) Mortgage backed security

Answer: C