TEST BANK
Introduction to Derivatives and Risk
Management 10th Edition
by Don M. Chance, Robert Brooks
AP
LU
S0
01
,Table of content
Chapter 1. Introduction
Chapter 2. Structure of Derivatives Markets
Chapter 3. Principles of Option Pricing
Chapter 4. Option Pricing Models
Chapter 5. Option Pricing Models
Chapter 6. Basic Option Strategies
Chapter 7. Advanced Option Strategies
Chapter 8. Principles of Pricing Forwards, Futures, and Options on
Futures
AP
Chapter 9. Futures Arbitrage Strategies
Chapter 10. Forward and Futures Hedging, Spread, and Target
Strategies
LU
Chapter 11. Swaps
Chapter 12. Interest Rate Forwards and Options
Chapter 13. Advanced Derivatives and Strategies
S0
Chapter 14. Financial Risk Management Techniques and Applications
Chapter 15. Managing Risk in an Organization
01
, CHAPTER 1: INTRODUCTION
MULTIPLE CHOICE TEST QUESTIONS
1. The market value of the derivatives contracts worldwide totals
a. less than a trillion dollars
b. in the hundreds of trillion dollars
c. over a trillion dollars but less than a hundred trillion
d. over quadrillion dollars
e. none of the above
2. Cash markets are also known as
a. speculative markets
b. spot markets
c. derivative markets
d. dollar markets
e. none of the above
AP
3. 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. none of the above
LU
4. Which of the following instruments are contracts but are not securities
a. stocks
b. options
c. swaps
d. a and b
e. b and c
S0
5. The positive relationship between risk and return is called
a. expected return
b. market efficiency
c. the law of one price
d. arbitrage
e. none of the above
01
6. 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. none of the above
7. Which of the following are advantages 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
10th Edition: Chapter 1 151 Test Bank
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
, e. all of the above
8. 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. all of the above
9. Options on futures are also known as
a. spot options
b. commodity options
c. exchange options
d. security options
e. none of the above
10. A market in which the price equals the true economic value
AP
a. is risk-free
b. has high expected returns
c. is organized
d. is efficient
e. all of the above
11. Which of the following trade on organized exchanges?
LU
a. caps
b. forwards
c. options
d. swaps
e. none of the above
12. Which of the following markets is/are said to provide price discovery?
S0
a. futures
b. forwards
c. options
d. a and b
e. b and c
13. Investors who do not consider risk in their decisions are said to be
01
a. speculating
b. short selling
c. risk neutral
d. traders
e. none of the above
14. 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. none of the above
15. Which of the following contracts obligates a buyer to buy or sell something at a later date?
10th Edition: Chapter 1 152 Test Bank
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
Introduction to Derivatives and Risk
Management 10th Edition
by Don M. Chance, Robert Brooks
AP
LU
S0
01
,Table of content
Chapter 1. Introduction
Chapter 2. Structure of Derivatives Markets
Chapter 3. Principles of Option Pricing
Chapter 4. Option Pricing Models
Chapter 5. Option Pricing Models
Chapter 6. Basic Option Strategies
Chapter 7. Advanced Option Strategies
Chapter 8. Principles of Pricing Forwards, Futures, and Options on
Futures
AP
Chapter 9. Futures Arbitrage Strategies
Chapter 10. Forward and Futures Hedging, Spread, and Target
Strategies
LU
Chapter 11. Swaps
Chapter 12. Interest Rate Forwards and Options
Chapter 13. Advanced Derivatives and Strategies
S0
Chapter 14. Financial Risk Management Techniques and Applications
Chapter 15. Managing Risk in an Organization
01
, CHAPTER 1: INTRODUCTION
MULTIPLE CHOICE TEST QUESTIONS
1. The market value of the derivatives contracts worldwide totals
a. less than a trillion dollars
b. in the hundreds of trillion dollars
c. over a trillion dollars but less than a hundred trillion
d. over quadrillion dollars
e. none of the above
2. Cash markets are also known as
a. speculative markets
b. spot markets
c. derivative markets
d. dollar markets
e. none of the above
AP
3. 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. none of the above
LU
4. Which of the following instruments are contracts but are not securities
a. stocks
b. options
c. swaps
d. a and b
e. b and c
S0
5. The positive relationship between risk and return is called
a. expected return
b. market efficiency
c. the law of one price
d. arbitrage
e. none of the above
01
6. 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. none of the above
7. Which of the following are advantages 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
10th Edition: Chapter 1 151 Test Bank
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
, e. all of the above
8. 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. all of the above
9. Options on futures are also known as
a. spot options
b. commodity options
c. exchange options
d. security options
e. none of the above
10. A market in which the price equals the true economic value
AP
a. is risk-free
b. has high expected returns
c. is organized
d. is efficient
e. all of the above
11. Which of the following trade on organized exchanges?
LU
a. caps
b. forwards
c. options
d. swaps
e. none of the above
12. Which of the following markets is/are said to provide price discovery?
S0
a. futures
b. forwards
c. options
d. a and b
e. b and c
13. Investors who do not consider risk in their decisions are said to be
01
a. speculating
b. short selling
c. risk neutral
d. traders
e. none of the above
14. 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. none of the above
15. Which of the following contracts obligates a buyer to buy or sell something at a later date?
10th Edition: Chapter 1 152 Test Bank
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
