, TESTBANK FOR Introduction to Derivatives and Risk Management 11th
Edition Chance
Important Notes
The file includes the complete test bank, organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
⚠️Note on Answer Keys: If the answer key is not included within the chapter
questions, you will find the complete answers and solutions at the end of each
chapter.
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
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,Chapter 1 - Introduction
True / False
1. Options, forwards, swaps, and futures are financial assets.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES:IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
NATIONAL STANDARDS: United States - BUSPROG: Analytic
KEYWORDS: Bloom’s: Remember
2. A risk premium is the additional return investors expect for assuming risk.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play
through their four main advantages.
KEYWORDS: Bloom’s: Remember
3. Derivatives permit investors to manage their risk more efficiently.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
4. The law of one price states that the price of an asset cannot change.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.4 - Fundamental Linkages Between Spot and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.04 - Explain the relationship between spot and
derivative markets through the mechanisms of arbitrage, storage, and
delivery.
Copyright Cengage Learning. Powered by Cognero. Page 1
,Chapter 1 - Introduction
KEYWORDS: Bloom’s: Remember
5. Derivative markets make stock and bond markets more efficient.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play
through their four main advantages.
KEYWORDS: Bloom’s: Understand
6. Swaps, like options, trade on organized exchanges.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
7. The theoretical fair value is the only value an asset can have.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.03 - Define the important concept of theoretical fair
value, which will be used throughout the book.
KEYWORDS: Bloom’s: Understand
8. Short selling is a high risk activity.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Understand
Copyright Cengage Learning. Powered by Cognero. Page 2
,Chapter 1 - Introduction
9. Uncertainty of future sales and cost of inputs are examples of financial risks businesses may face.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Understand
10. A call option on a futures contract gives the buyer the right to buy a futures contract.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
Multiple Choice
11. Cash markets are also known as
a. speculative markets.
b. spot markets.
c. derivative markets.
d. dollar markets.
e. equity markets.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
12. A call option gives the holder
a. the right to buy something.
b. the right to sell something.
c. the obligation to buy something.
d. the obligation to sell something.
e. the right to sell something and the obligation to buy something.
Copyright Cengage Learning. Powered by Cognero. Page 3
,Chapter 1 - Introduction
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Understand
13. Which of the following instruments are contracts but are not securities?
a. Stocks
b. Options
c. Swaps
d. Futures contracts
e. Forward contracts
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Understand
14. The positive relationship between risk and expected return is known as
a. the risk–return tradeoff.
b. diversification.
c. market efficiency.
d. arbitrage.
e. the law of one price.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Understand
15. A transaction in which an investor holds a position in the spot market and sells a futures contract or
writes a call is
a. a gamble.
b. a speculative position.
c. a hedge.
d. a risk-free transaction.
e. a short position..
ANSWER: c
POINTS: 1
Copyright Cengage Learning. Powered by Cognero. Page 4
,Chapter 1 - Introduction
DIFFICULTY: Moderate
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play
through their four main advantages.
KEYWORDS: Bloom’s: Remember
16. Which of the following is an advantage of derivatives?
a. Lower transaction costs than securities and commodities
b. Reveal information about expected prices and volatility
c. Help control risk
d. Make spot prices stay closer to their true values
e. Lower transaction costs than securities and commodities, reveal information about expected
prices and volatility, help control risk, and make spot prices stay closer to their true values
ANSWER: e
POINTS: 1
DIFFICULTY: Moderate
REFERENCES: 1.5 - Role of Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play
through their four main advantages.
KEYWORDS: Bloom’s: Understand
17. A forward contract has which of the following characteristics?
a. Has a buyer and a seller
b. Trades on an organized exchange
c. Has a daily settlement
d. Gives the right but not the obligation to buy
e. Has a buyer and a seller, trades on an organized exchange, has a daily settlement, and gives
the right but not the obligation to buy
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Understand
18. Which feature distinguishes futures contracts from forward contracts?
a. Futures contracts are customized agreements negotiated privately.
b. Futures contracts involve daily settlement of gains and losses (marking to market).
c. Forward contracts require daily margin payments to an exchange.
d. Futures contracts cannot be used to hedge risk.
e. Forward contracts always trade on organized exchanges.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
Copyright Cengage Learning. Powered by Cognero. Page 5
,Chapter 1 - Introduction
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
19. Investors who do not consider risk in their decisions are said to be
a. speculating.
b. short selling.
c. risk neutral.
d. traders.
e. hedgers.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Remember
20. Which of the following statements is not true about the law of one price?
a. Investors prefer more wealth to less.
b. Investments that offer the same return in all states must pay the risk-free rate.
c. If two investment opportunities offer equivalent outcomes, they must have the same price.
d. Investors are risk neutral.
e. Given two investments, investors prefer one that performs at least as well in all states and
better in at least one state.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.4 - Fundamental Linkages Between Spot and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.04 - Explain the relationship between spot and
derivative markets through the mechanisms of arbitrage, storage, and
delivery.
KEYWORDS: Bloom’s: Remember
21. Which of the following contracts obligates a buyer to buy or sell something at a later date?
a. Call
b. Futures
c. Cap
d. Put
e. Swaption
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
Copyright Cengage Learning. Powered by Cognero. Page 6
,Chapter 1 - Introduction
KEYWORDS: Bloom’s: Remember
22. The process of selling borrowed assets with the intention of buying them back at a later date and
lower price is referred to as
a. longing an asset.
b. asset flipping.
c. shorting.
d. anticipated price fall arbitrage.
e. longing an asset and also as asset flipping.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Remember
23. In which one of the following types of contract between a seller and a buyer does the seller agree to
sell a specified asset to the buyer today and then buy it back at a specified time in the future at an agreed
future price?
a. Repurchase agreement
b. Short selling
c. Swap
d. Call
e. Forward contract
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Understand
24. The expected return minus the risk-free rate is called
a. the risk premium.
b. the percentage return.
c. the asset’s beta.
d. the return premium.
e. the discount rate
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
Copyright Cengage Learning. Powered by Cognero. Page 7
, Chapter 1 - Introduction
efficiency.
KEYWORDS: Bloom’s: Remember
25. When the law of one price is violated in that the same good is selling for two different prices, an
opportunity for what type of transaction is created?
a. Return-to-equilibrium transaction
b. Risk-assuming transaction
c. Speculative transaction
d. Arbitrage transaction
e. Hedging transaction
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
REFERENCES: 1.4 - Fundamental Linkages Between Spot and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.04 - Explain the relationship between spot and
derivative markets through the mechanisms of arbitrage, storage, and
delivery.
KEYWORDS: Bloom’s: Analyze
26. Cash (spot) markets are characterized by
a. delivery at a later date at a price agreed today
b. no payment until expiration.
c. immediate (or near-immediate) delivery and usually immediate payment.
d. the right but not the obligation to transact.
e. exchange of cash flows without exchanging the underlying.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES:IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
NATIONAL STANDARDS: United States - BUSPROG: Analytic
KEYWORDS: Bloom’s: Remember
27. Which of these best describes a derivative market?
a. A market for ownership of real assets only
b. A market for contractual instruments whose performance depends on another factor
c. A market where securities create wealth directly
d. A market where delivery must occur immediately
e. A market limited to exchange-traded instruments only
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
Copyright Cengage Learning. Powered by Cognero. Page 8
Edition Chance
Important Notes
The file includes the complete test bank, organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
⚠️Note on Answer Keys: If the answer key is not included within the chapter
questions, you will find the complete answers and solutions at the end of each
chapter.
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
Contact Email:
,Chapter 1 - Introduction
True / False
1. Options, forwards, swaps, and futures are financial assets.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES:IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
NATIONAL STANDARDS: United States - BUSPROG: Analytic
KEYWORDS: Bloom’s: Remember
2. A risk premium is the additional return investors expect for assuming risk.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play
through their four main advantages.
KEYWORDS: Bloom’s: Remember
3. Derivatives permit investors to manage their risk more efficiently.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
4. The law of one price states that the price of an asset cannot change.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.4 - Fundamental Linkages Between Spot and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.04 - Explain the relationship between spot and
derivative markets through the mechanisms of arbitrage, storage, and
delivery.
Copyright Cengage Learning. Powered by Cognero. Page 1
,Chapter 1 - Introduction
KEYWORDS: Bloom’s: Remember
5. Derivative markets make stock and bond markets more efficient.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play
through their four main advantages.
KEYWORDS: Bloom’s: Understand
6. Swaps, like options, trade on organized exchanges.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
7. The theoretical fair value is the only value an asset can have.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.03 - Define the important concept of theoretical fair
value, which will be used throughout the book.
KEYWORDS: Bloom’s: Understand
8. Short selling is a high risk activity.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Understand
Copyright Cengage Learning. Powered by Cognero. Page 2
,Chapter 1 - Introduction
9. Uncertainty of future sales and cost of inputs are examples of financial risks businesses may face.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Understand
10. A call option on a futures contract gives the buyer the right to buy a futures contract.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
Multiple Choice
11. Cash markets are also known as
a. speculative markets.
b. spot markets.
c. derivative markets.
d. dollar markets.
e. equity markets.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
12. A call option gives the holder
a. the right to buy something.
b. the right to sell something.
c. the obligation to buy something.
d. the obligation to sell something.
e. the right to sell something and the obligation to buy something.
Copyright Cengage Learning. Powered by Cognero. Page 3
,Chapter 1 - Introduction
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Understand
13. Which of the following instruments are contracts but are not securities?
a. Stocks
b. Options
c. Swaps
d. Futures contracts
e. Forward contracts
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Understand
14. The positive relationship between risk and expected return is known as
a. the risk–return tradeoff.
b. diversification.
c. market efficiency.
d. arbitrage.
e. the law of one price.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Understand
15. A transaction in which an investor holds a position in the spot market and sells a futures contract or
writes a call is
a. a gamble.
b. a speculative position.
c. a hedge.
d. a risk-free transaction.
e. a short position..
ANSWER: c
POINTS: 1
Copyright Cengage Learning. Powered by Cognero. Page 4
,Chapter 1 - Introduction
DIFFICULTY: Moderate
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play
through their four main advantages.
KEYWORDS: Bloom’s: Remember
16. Which of the following is an advantage of derivatives?
a. Lower transaction costs than securities and commodities
b. Reveal information about expected prices and volatility
c. Help control risk
d. Make spot prices stay closer to their true values
e. Lower transaction costs than securities and commodities, reveal information about expected
prices and volatility, help control risk, and make spot prices stay closer to their true values
ANSWER: e
POINTS: 1
DIFFICULTY: Moderate
REFERENCES: 1.5 - Role of Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play
through their four main advantages.
KEYWORDS: Bloom’s: Understand
17. A forward contract has which of the following characteristics?
a. Has a buyer and a seller
b. Trades on an organized exchange
c. Has a daily settlement
d. Gives the right but not the obligation to buy
e. Has a buyer and a seller, trades on an organized exchange, has a daily settlement, and gives
the right but not the obligation to buy
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Understand
18. Which feature distinguishes futures contracts from forward contracts?
a. Futures contracts are customized agreements negotiated privately.
b. Futures contracts involve daily settlement of gains and losses (marking to market).
c. Forward contracts require daily margin payments to an exchange.
d. Futures contracts cannot be used to hedge risk.
e. Forward contracts always trade on organized exchanges.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
Copyright Cengage Learning. Powered by Cognero. Page 5
,Chapter 1 - Introduction
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember
19. Investors who do not consider risk in their decisions are said to be
a. speculating.
b. short selling.
c. risk neutral.
d. traders.
e. hedgers.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Remember
20. Which of the following statements is not true about the law of one price?
a. Investors prefer more wealth to less.
b. Investments that offer the same return in all states must pay the risk-free rate.
c. If two investment opportunities offer equivalent outcomes, they must have the same price.
d. Investors are risk neutral.
e. Given two investments, investors prefer one that performs at least as well in all states and
better in at least one state.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.4 - Fundamental Linkages Between Spot and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.04 - Explain the relationship between spot and
derivative markets through the mechanisms of arbitrage, storage, and
delivery.
KEYWORDS: Bloom’s: Remember
21. Which of the following contracts obligates a buyer to buy or sell something at a later date?
a. Call
b. Futures
c. Cap
d. Put
e. Swaption
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
Copyright Cengage Learning. Powered by Cognero. Page 6
,Chapter 1 - Introduction
KEYWORDS: Bloom’s: Remember
22. The process of selling borrowed assets with the intention of buying them back at a later date and
lower price is referred to as
a. longing an asset.
b. asset flipping.
c. shorting.
d. anticipated price fall arbitrage.
e. longing an asset and also as asset flipping.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Remember
23. In which one of the following types of contract between a seller and a buyer does the seller agree to
sell a specified asset to the buyer today and then buy it back at a specified time in the future at an agreed
future price?
a. Repurchase agreement
b. Short selling
c. Swap
d. Call
e. Forward contract
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
efficiency.
KEYWORDS: Bloom’s: Understand
24. The expected return minus the risk-free rate is called
a. the risk premium.
b. the percentage return.
c. the asset’s beta.
d. the return premium.
e. the discount rate
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short
selling, repurchase agreements, the risk–return relationship, and market
Copyright Cengage Learning. Powered by Cognero. Page 7
, Chapter 1 - Introduction
efficiency.
KEYWORDS: Bloom’s: Remember
25. When the law of one price is violated in that the same good is selling for two different prices, an
opportunity for what type of transaction is created?
a. Return-to-equilibrium transaction
b. Risk-assuming transaction
c. Speculative transaction
d. Arbitrage transaction
e. Hedging transaction
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
REFERENCES: 1.4 - Fundamental Linkages Between Spot and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.04 - Explain the relationship between spot and
derivative markets through the mechanisms of arbitrage, storage, and
delivery.
KEYWORDS: Bloom’s: Analyze
26. Cash (spot) markets are characterized by
a. delivery at a later date at a price agreed today
b. no payment until expiration.
c. immediate (or near-immediate) delivery and usually immediate payment.
d. the right but not the obligation to transact.
e. exchange of cash flows without exchanging the underlying.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES:IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
NATIONAL STANDARDS: United States - BUSPROG: Analytic
KEYWORDS: Bloom’s: Remember
27. Which of these best describes a derivative market?
a. A market for ownership of real assets only
b. A market for contractual instruments whose performance depends on another factor
c. A market where securities create wealth directly
d. A market where delivery must occur immediately
e. A market limited to exchange-traded instruments only
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives:
options, forward contracts, futures contracts, and swaps.
Copyright Cengage Learning. Powered by Cognero. Page 8
