Question 1

Futures contracts:

Accepted Answer

A)  are identical to forward contracts except for the size of the contract.
B)  provides an option to purchase an asset at a specified price on the settlement date.
C)  are marked to the market on a daily basis.
D)  cannot be resold.
E)  are limited to contracts on financial assets.F) None of the above
G) A) and D)

Question 2

You are the purchasing agent for a major cookie company. You anticipate that your firm will need 20,000 bushels of oats in December. You decide to hedge your position today and did so at the closing price of the day. Assume that the actual market price turns out to be 228.0 on the day you actually buy the oats. How much did you gain or lose by hedging your position?
Oats - 5,000 bu.:
Cents per bu.

Accepted Answer

A)  lost $4,000
B)  lost $400
C)  saved $40
D)  saved $400
E)  saved $4,000F) None of the above
G) B) and C)

Question 3

Which one of the following actions will provide you with the right, but not the obligation, to sell the underlying asset at a specified price during a specified period of time?

Accepted Answer

A)  purchase of a call option
B)  sale of a call option
C)  purchase of a put option
D)  sale of a put option
E)  swapF) C) and E)
G) C) and D)

Question 4

Given the following information, what is the price per troy ounce that will be used for today's marking-to-market for the December silver contract?
Silver - 5,000 troy oz.:
Dollars and cents per troy oz.

Accepted Answer

A)  $9.53
B)  $9.60
C)  $10.185
D)  $10.190
E)  $10.220F) C) and D)
G) A) and E)

Question 5

You decided to speculate in the market and sold 8 gold futures contracts when the futures price was $867.50 per ounce. The price on the contract maturity date was $730.40. What was your total profit or loss if the contract size was 100 ounces?

Accepted Answer

A)  -$109,680
B)  -$13,710
C)  $13,710
D)  $54,840
E)  $109,680F) B) and C)
G) A) and C)

Question 6

By hedging financial risk, a firm can:

Accepted Answer

A)  ensure a steady rate of return for its shareholders.
B)  eliminate price changes over the long-term.
C)  ensure its own economic viability.
D)  gain time to adapt to changing market conditions.
E)  eliminate its exposure to price increases in raw materials.F) B) and E)
G) A) and E)

Question 7

A swap dealer in the U.S.:

Accepted Answer

A)  acts solely as a seller of swap contracts.
B)  matches buyers to sellers.
C)  only deals if its book is matched.
D)  is frequently a commercial bank.
E)  trades electronically via NASDAQ.F) C) and D)
G) A) and B)

Question 8

Browning Enterprises currently has all fixed-rate debt. The firm would like to convert part of this to floating-rate debt. Which one of the following will accomplish this for the firm?

Accepted Answer

A)  option on floating-rate bonds
B)  forward contract on U.S.Treasury bills
C)  interest rate swap
D)  currency swap
E)  interest rate call optionF) A) and D)
G) C) and D)

Question 9

A strong argument can be made that the collapse of the U.S. savings and loan industry began when:

Accepted Answer

A)  the inflation rates in the U.S.began rising rapidly.
B)  the volatility of interest rates increased significantly.
C)  fluctuating commodity prices became the norm.
D)  the Bretton Woods accord became effective.
E)  the Federal Reserve began controlling the market rate of interest.F) C) and D)
G) A) and E)

Question 10

Suppose you purchase a September cocoa futures contract at the last price of the day as shown in the table below. What will be your profit or loss on this contract if the price turns out to be $1,707 per metric ton at expiration?
Futures:
Cocoa - 10 metric tons, $ per ton

Accepted Answer

A)  $30
B)  $110
C)  $150
D)  $1,100
E)  $1,500F) A) and B)
G) A) and E)

Question 11

Which one of the following statements concerning option payoffs is correct?

Accepted Answer

A)  The buyer of a call profits when the exercise price exceeds the market price.
B)  The buyer of a call profits when the strike price exceeds the exercise price.
C)  A put will only be exercised if both the seller and the buyer can profit.
D)  Both the buyer and the seller profit when a call is exercised.
E)  The seller of a put incurs a loss when a put is exercised.F) All of the above
G) A) and E)

Exam 23: Risk Management: An Introduction to Financial Engineering

You decided to speculate in the market and sold 8 gold futures contracts when the futures price was $867.50 per ounce. The price on the contract maturity date was $730.40. What was your total profit or loss if the contract size was 100 ounces?

Correct Answer
verified

By hedging financial risk, a firm can:

Correct Answer
verified

Futures contracts:

Correct Answer
verified

Browning Enterprises currently has all fixed-rate debt. The firm would like to convert part of this to floating-rate debt. Which one of the following will accomplish this for the firm?

Correct Answer
verified

A strong argument can be made that the collapse of the U.S. savings and loan industry began when:

Correct Answer
verified

Which one of the following statements concerning option payoffs is correct?

Correct Answer
verified

Given the following information, what is the price per troy ounce that will be used for today's marking-to-market for the December silver contract? Silver - 5,000 troy oz.: Dollars and cents per troy oz.

Correct Answer
verified

Which one of the following actions will provide you with the right, but not the obligation, to sell the underlying asset at a specified price during a specified period of time?

Correct Answer
verified

A swap dealer in the U.S.:

Correct Answer
verified

Suppose you purchase a September cocoa futures contract at the last price of the day as shown in the table below. What will be your profit or loss on this contract if the price turns out to be $1,707 per metric ton at expiration? Futures: Cocoa - 10 metric tons, $ per ton

Correct Answer
verified

Correct Answer
verified

Exam 23: Risk Management: An Introduction to Financial Engineering

You decided to speculate in the market and sold 8 gold futures contracts when the futures price was $867.50 per ounce. The price on the contract maturity date was $730.40. What was your total profit or loss if the contract size was 100 ounces?

Correct AnswerverifiedShow Answer

By hedging financial risk, a firm can:

Correct AnswerverifiedShow Answer

Futures contracts:

Correct AnswerverifiedShow Answer

Browning Enterprises currently has all fixed-rate debt. The firm would like to convert part of this to floating-rate debt. Which one of the following will accomplish this for the firm?

Correct AnswerverifiedShow Answer

A strong argument can be made that the collapse of the U.S. savings and loan industry began when:

Correct AnswerverifiedShow Answer

Which one of the following statements concerning option payoffs is correct?

Correct AnswerverifiedShow Answer

Given the following information, what is the price per troy ounce that will be used for today's marking-to-market for the December silver contract? Silver - 5,000 troy oz.: Dollars and cents per troy oz.

Correct AnswerverifiedShow Answer

Which one of the following actions will provide you with the right, but not the obligation, to sell the underlying asset at a specified price during a specified period of time?

Correct AnswerverifiedShow Answer

A swap dealer in the U.S.:

Correct AnswerverifiedShow Answer

Suppose you purchase a September cocoa futures contract at the last price of the day as shown in the table below. What will be your profit or loss on this contract if the price turns out to be $1,707 per metric ton at expiration? Futures: Cocoa - 10 metric tons, $ per ton

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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