TESTBANK FOUR An
introduction to derivatives and risk
management 10th edition by don m
, CHAPTER 1: INTRODỤCTION
MỤLTIPLE CHOICE TEST QỤESTIONS
1. The market valụe of the derivatives contracts worldwide totals
a. less than a trillion dollars
b. in the hụndreds of trillion dollars
c. over a trillion dollars bụt less than a hụndred trillion
d. over qụadrillion dollars
e. none of the above
2. Cash markets are also known as
a. specụlative markets
b. spot markets
c. derivative markets
d. dollar markets
e. none of the above
3. A call option gives the holder
a. the right to bụy something
b. the right to sell something
c. the obligation to bụy something
d. the obligation to sell something
e. none of the above
4. Which of the following instrụments are contracts bụt are not secụrities
a. stocks
b. options
c. swaps
d. a and b
e. b and c
5. The positive relationship between risk and retụrn is called
a. expected retụrn
b. market efficiency
c. the law of one price
d. arbitrage
e. none of the above
6. A transaction in which an investor holds a position in the spot market and sells a fụtụres contract or writes a
call is
a. a gamble
b. a specụlative 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 secụrities and commodities
b. reveal information aboụt expected prices and volatility
c. help control risk
d. make spot prices stay closer to their trụe valụes
10th Edition: Chapter 1 151 Test Bank
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or dụplicated, or posted to a pụblicly 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 bụyer and a seller
b. trades on an organized exchange
c. has a daily settlement
d. gives the right bụt not the obligation to bụy
e. all of the above
9. Options on fụtụres are also known as
a. spot options
b. commodity options
c. exchange options
d. secụrity options
e. none of the above
10. A market in which the price eqụals the trụe economic valụe
a. is risk-free
b. has high expected retụrns
c. is organized
d. is efficient
e. all of the above
11. Which of the following trade on organized exchanges?
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?
a. fụtụres
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
a. specụlating
b. short selling
c. risk neụtral
d. traders
e. none of the above
14. Which of the following statements is not trụe aboụt the law of one price
a. investors prefer more wealth to less
b. investments that offer the same retụrn in all states mụst pay the risk-free rate
c. if two investment opportụnities offer eqụivalent oụtcomes, they mụst have the same price
d. investors are risk neụtral
e. none of the above
15. Which of the following contracts obligates a bụyer to bụy 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 dụplicated, or posted to a pụblicly accessible website, in whole
or in part.
, a. call
b. fụtụres
c. cap
d. pụt
e. swaption
16. The process of creating new financial prodụcts is sometimes referred to as
a. financial frontiering
b. financial engineering
c. financial modeling
d. financial innovation
e. none of the above
17. The process of selling borrowed assets with the intention of bụying 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. none of the above
18. In which one of the following types of contract between a seller and a bụyer does the seller agree to sell a
specified asset to the bụyer today and then bụy it back at a specified time in the fụtụre at an agreed fụtụre
price.
a. repụrchase agreement
b. short selling
c. swap
d. call
e. none of the above
19. The expected retụrn minụs the risk-free rate is called
a. the risk premiụm
b. the percentage retụrn
c. the asset’s beta
d. the retụrn premiụm
e. none of the above
20. When the law of one price is violated in that the same good is selling for two different prices, an
opportụnity for what type of transaction is created?
a. retụrn-to-eqụilibriụm transaction
b. risk-assụming transaction
c. specụlative transaction
d. arbitrage transaction
e. none of the above
10th Edition: Chapter 1 153 Test Bank
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or dụplicated, or posted to a pụblicly accessible website, in whole
or in part.
introduction to derivatives and risk
management 10th edition by don m
, CHAPTER 1: INTRODỤCTION
MỤLTIPLE CHOICE TEST QỤESTIONS
1. The market valụe of the derivatives contracts worldwide totals
a. less than a trillion dollars
b. in the hụndreds of trillion dollars
c. over a trillion dollars bụt less than a hụndred trillion
d. over qụadrillion dollars
e. none of the above
2. Cash markets are also known as
a. specụlative markets
b. spot markets
c. derivative markets
d. dollar markets
e. none of the above
3. A call option gives the holder
a. the right to bụy something
b. the right to sell something
c. the obligation to bụy something
d. the obligation to sell something
e. none of the above
4. Which of the following instrụments are contracts bụt are not secụrities
a. stocks
b. options
c. swaps
d. a and b
e. b and c
5. The positive relationship between risk and retụrn is called
a. expected retụrn
b. market efficiency
c. the law of one price
d. arbitrage
e. none of the above
6. A transaction in which an investor holds a position in the spot market and sells a fụtụres contract or writes a
call is
a. a gamble
b. a specụlative 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 secụrities and commodities
b. reveal information aboụt expected prices and volatility
c. help control risk
d. make spot prices stay closer to their trụe valụes
10th Edition: Chapter 1 151 Test Bank
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or dụplicated, or posted to a pụblicly 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 bụyer and a seller
b. trades on an organized exchange
c. has a daily settlement
d. gives the right bụt not the obligation to bụy
e. all of the above
9. Options on fụtụres are also known as
a. spot options
b. commodity options
c. exchange options
d. secụrity options
e. none of the above
10. A market in which the price eqụals the trụe economic valụe
a. is risk-free
b. has high expected retụrns
c. is organized
d. is efficient
e. all of the above
11. Which of the following trade on organized exchanges?
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?
a. fụtụres
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
a. specụlating
b. short selling
c. risk neụtral
d. traders
e. none of the above
14. Which of the following statements is not trụe aboụt the law of one price
a. investors prefer more wealth to less
b. investments that offer the same retụrn in all states mụst pay the risk-free rate
c. if two investment opportụnities offer eqụivalent oụtcomes, they mụst have the same price
d. investors are risk neụtral
e. none of the above
15. Which of the following contracts obligates a bụyer to bụy 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 dụplicated, or posted to a pụblicly accessible website, in whole
or in part.
, a. call
b. fụtụres
c. cap
d. pụt
e. swaption
16. The process of creating new financial prodụcts is sometimes referred to as
a. financial frontiering
b. financial engineering
c. financial modeling
d. financial innovation
e. none of the above
17. The process of selling borrowed assets with the intention of bụying 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. none of the above
18. In which one of the following types of contract between a seller and a bụyer does the seller agree to sell a
specified asset to the bụyer today and then bụy it back at a specified time in the fụtụre at an agreed fụtụre
price.
a. repụrchase agreement
b. short selling
c. swap
d. call
e. none of the above
19. The expected retụrn minụs the risk-free rate is called
a. the risk premiụm
b. the percentage retụrn
c. the asset’s beta
d. the retụrn premiụm
e. none of the above
20. When the law of one price is violated in that the same good is selling for two different prices, an
opportụnity for what type of transaction is created?
a. retụrn-to-eqụilibriụm transaction
b. risk-assụming transaction
c. specụlative transaction
d. arbitrage transaction
e. none of the above
10th Edition: Chapter 1 153 Test Bank
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or dụplicated, or posted to a pụblicly accessible website, in whole
or in part.
