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Home
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Hedging Instruments
Hedging Instruments MCQs
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The process of protecting oneself against future price changes by shifting some or all of the risk to someone else is called:
speculating
investing
hedging
gambling
?
People who bet on price changes in the hope of making a profit are called:
speculators
hedgers
investors
gamblers
?
Borrowing a security and selling it with the hope of buying it back later at a cheaper price is called
leveraging
short-selling.
investing
gambling
?
What is called the amount of cash put up by an investor, which is a fraction of the value the asset?
Short position.
Long position.
Margin
Fractional reserve
?
An agreement to accept or make delivery of an asset on a particular future date at a price struck today is called a
margin
futures contract.
spot contract.
cash contract.
?
The exclusive marketplace in Canada for derivatives trading is a
Vancouver Stock Exchange
Toronto Stock Exchange
Montreal Stock Exchange
Alberta Stock Exchange
?
Which of the following is not common to both forward contracts and futures contracts?
Both deal in durable goods.
Both are used for hedging.
Both require estimates of the future by participants.
Both have the buyer taking future delivery of the assets in question.
?
An individual who expects that prices for some asset will rise is said to take a
long position
short position
worst case scenario
the current spot position
?
The method whereby an investor assumes that futures and their spot prices move together and then considers how to hedge depending on whether spot pric...
long position.
short position.
worst case scenario.
the current spot position.
?
The differential between the spot price and the futures price is known as
the spread.
the basis.
the differential rate.
the Gap.
?
Which of the following exchanges does not trade in derivatives?
New York Stock Exchange.
Chicago Mercantile Exchange.
Eurex
Montreal Exchange.
?
The person who takes a short position usually
sells an asset that he does not own with the intent of buying it back in the future at a lower price.
buys an asset with the intent of selling it in the future at a higher price for profit.
owns the asset but sells it with the intent of buying it back at a higher price.
sells an asset that he does not own with the intent of buying it back in the future at a higher price.
?
A Canadian importer has ordered $1,000,000 US worth of software to be delivered in six months. The current spot exchange rate is $1.50 CAN = $1.00 US....
$30,000 US.
$30,000 CAN.
$50,000 CAN.
$20,000 CAN.
?
Ft(t)=futures contract price purchased at time t for delivery date t; S(t) = spot price at time t; Rs = the yield on a short-term instrument; RL = the...
Ft(t) + (Rs – RL)(t - t)/360 (Ft(t))
(Rs – RL)((t - t)/360)S(t)
S(t) + (Rs – RL)(t - t)(360)S(t)
(Rs – RL)((t - t)/360))
?
The right but not the obligation to buy an asset at a particular price during a stipulated period is called a
Call option
Put option
Strike price
Long option
?
The right but not the obligation to sell an asset at a particular price during a stipulated period is called a
Call option
Put option
Strike option
Long option
?
When an asset is selling at a strike price below its market price, it is said to be
in a long position.
selling at its exercise price.
in the money.
out of the money.
?
Suppose an investor buys an option for a $1000 premium on a $100,000 August T-bill futures contract with a strike price of 120. On the expiration date...
He will buy the asset and make a profit of $5,000.
He will not buy the asset and thus suffer no loss.
He will buy the option but suffer a loss of $5,000.
He will not buy the option but he will suffer a loss of $1,000.
?
Suppose an investor buys an option for a $1000 premium on a $100,000 August T-bill futures contract with a strike price of 120. On the expiration date...
115
120
116
125
?
If S = spot price, E = exercise price, then the value of a put option is given by
MAX (0, E – S)
MAX (0, S – E)
MIN (0, E – S)
MIN (0, S – E)
?
Which of the following is not a factor of the Black-Scholes model of option pricing?
The volatility of an asset’s price.
The interest rate on a riskless asset.
The exercise date.
The strike price.
?
The exchanges of interest rate payments or foreign currencies are called
swaps
options
futures
forwards
?
A hedge to offset the risk of exchange rate changes on planned transactions is which of the following types of hedge?
Cash flow hedge.
Fair value hedge.
Either a cash flow hedge or a fair value hedge, at management's discretion.
Neither a cash flow hedge nor a fair value hedge.
