FIN 420 FINAL EXAM QUESTIONS AND ANSWERS
When the net profit on both the futures and cash position equals zero, this is known as
a(n): - Answers :perfect hedge
The basis on a futures contract is defined as - Answers :the cash price minus the
futures price
A banks hedge ratio will determine - Answers :The appropriate number of futures
contracts relative to cash market exposure
Banks use financial derivatives for all of the following except: - Answers :Banks use
financial derivatives for all of the above
adjust the sensitivity of earnings to changes in interest rates.
lock-in the cost of liabilities.
adjust maturities by creating synthetic liabilities.
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? -
Answers :The bank will profit in the cash market.
The daily change in the value due to the marking-to-market process is know as the -
Answers :variation margin.
Which of the following is true about the futures rates - Answers :They can provide
information about the expectations of future cash rates
Which of the following is correct about futures contracts? - Answers :Sellers of futures
contracts make a profit when prices fall.
Eurodollars are? - Answers :U.S. dollar-denominated deposits in banks located outside
the U.S.
Why is the risk greater for cross-hedgers - Answers :Futures and cash rates may not be
correlated
If the basis equals zero at expiration, which of the following is true? - Answers :perfect
hedge
Which of the following would generally not be considered a speculator? - Answers
:Hedger
, The largest single loan category for all banks is - Answers :commercial loans
The highest ROA and charge-off rates in 2012 were reported by - Answers :credit card
banks.
Widespread use of credit scoring - Answers :standardizes the perceived quality of
different loan types
The vast majority of FDIC-insured institutions are classified as - Answers :commercial
lenders
Large firms can obtain funds from which of the following - Answers :Equity financing
Issuing commercial paper
Issuing long-term bonds
Loans from commercial banks
When a bank lends in a narrow geographic area, they are subject to - Answers
:Concentration risk
In the credit process, which of the following activities falls under Business Development
and Credit Analysis - Answers :Officer Call Programs
Which of the following formalizes a bank s lending guidelines - Answers :Loan policy
Which of the following is not true regarding the basis? - Answers :The basis may not
equal zero before expiration.
Which of the following primarily takes futures positions that are outstanding for just
minutes? - Answers :Scalper
The basis: - Answers :Futures rate less the cash rate
The daily settlement process that credits gains or deducts losses from a futures
customer s account is called - Answers :marking-to-market
A bank is faced with a current cash rate of 1.2% and management opted to hedge with
a .75% future contract. If at expiration the rates are 1%, what is the banks effective
return? - Answers :.95%
The risk assumed by the hedger is? - Answers :The basis might change between the
time the hedge is initiated and the time it is offset.
When you sell a futures contract, your futures position is - Answers :short.
To buy a futures contract, one must post a(n): - Answers :initial margin.
When the net profit on both the futures and cash position equals zero, this is known as
a(n): - Answers :perfect hedge
The basis on a futures contract is defined as - Answers :the cash price minus the
futures price
A banks hedge ratio will determine - Answers :The appropriate number of futures
contracts relative to cash market exposure
Banks use financial derivatives for all of the following except: - Answers :Banks use
financial derivatives for all of the above
adjust the sensitivity of earnings to changes in interest rates.
lock-in the cost of liabilities.
adjust maturities by creating synthetic liabilities.
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? -
Answers :The bank will profit in the cash market.
The daily change in the value due to the marking-to-market process is know as the -
Answers :variation margin.
Which of the following is true about the futures rates - Answers :They can provide
information about the expectations of future cash rates
Which of the following is correct about futures contracts? - Answers :Sellers of futures
contracts make a profit when prices fall.
Eurodollars are? - Answers :U.S. dollar-denominated deposits in banks located outside
the U.S.
Why is the risk greater for cross-hedgers - Answers :Futures and cash rates may not be
correlated
If the basis equals zero at expiration, which of the following is true? - Answers :perfect
hedge
Which of the following would generally not be considered a speculator? - Answers
:Hedger
, The largest single loan category for all banks is - Answers :commercial loans
The highest ROA and charge-off rates in 2012 were reported by - Answers :credit card
banks.
Widespread use of credit scoring - Answers :standardizes the perceived quality of
different loan types
The vast majority of FDIC-insured institutions are classified as - Answers :commercial
lenders
Large firms can obtain funds from which of the following - Answers :Equity financing
Issuing commercial paper
Issuing long-term bonds
Loans from commercial banks
When a bank lends in a narrow geographic area, they are subject to - Answers
:Concentration risk
In the credit process, which of the following activities falls under Business Development
and Credit Analysis - Answers :Officer Call Programs
Which of the following formalizes a bank s lending guidelines - Answers :Loan policy
Which of the following is not true regarding the basis? - Answers :The basis may not
equal zero before expiration.
Which of the following primarily takes futures positions that are outstanding for just
minutes? - Answers :Scalper
The basis: - Answers :Futures rate less the cash rate
The daily settlement process that credits gains or deducts losses from a futures
customer s account is called - Answers :marking-to-market
A bank is faced with a current cash rate of 1.2% and management opted to hedge with
a .75% future contract. If at expiration the rates are 1%, what is the banks effective
return? - Answers :.95%
The risk assumed by the hedger is? - Answers :The basis might change between the
time the hedge is initiated and the time it is offset.
When you sell a futures contract, your futures position is - Answers :short.
To buy a futures contract, one must post a(n): - Answers :initial margin.
