Hull:gOptions,gFutures,gandgOthergDerivatives,gNinthgEdition,g
GlobalgEdition
Multiple gChoice gTestgBank:gQuestionsgwithgAnswers
1. Agone-yeargforwardgcontract gis gangagreementgwhere
A. Onegsideghas gthegrightgtogbuygangassetgforgagcertaingpricegingoneg year’s gtime.
B. Onegsideghas gthegobligationgtogbuygangassetgforgagcertaingpricegingonegyear’s gtime.
C. Onegsideghas gthegobligationgtogbuygangassetgforgagcertaingpricegatgsomegti
megduring gthegnextgyear.
D. Onegsideghas gthegobligationgtogbuygangassetgforgthegmarketgpricegingonegyear
’s gtime.
Answer:gB
Agone-
yeargforwardgcontractgis gangobligationgtogbuygorgsellgingone gyear’s gtimegforgagpredetermined g
price.gBygcontrast,gangoptiongis gtheg rightg to gbuyg orgsell.
2. Whichgofgthegfollowing gis gNOTgtrue
A. WhengagCBOEgcallgoptiongongIBMgis gexercised,gIBMgissues gmoregstock
B. AngAmericangoptiongcangbegexercisedgatganygtimegduring gits glife
C. Angcallgoptiongwillgalways gbegexercisedgatgmaturitygifg theg underlying gassetgpricegi
s ggreatergthangthegstrikegprice
D. Agputgoptiongwillgalways gbegexercisedgatgmaturity gifgthegstrikeg pricegis ggreatergth
angthegunderlying gassetgprice.
Answer:gA
WhengangIBMgcallgoptiongis gexercisedgthegoptiongsellergmustgbuygshares gingthegmarketg to
gsell gtogthegoptiongbuyer. gIBM gis gnot ginvolvedgin ganyg way.gAnswers gB,gC,gandgD gareg true.
3. Agone-yeargcallgoptiongongagstockgwithgagstrikegpricegofg$30 gcosts g$3;ga gone-
yeargputgoptiong on gthe gstock gwith gagstrike gpricegofg$30gcosts g$4. gSupposegthat gagtrader gbu
ys gtwo gcallgoptions gandg oneg putg option.gThe gbreakeven gstockg pricegaboveg whichg theg tra
dergmakes gagprofitgis
A. $35
B. $40
C. $30
D. $36
Answer:gA
Whengthegstockgpricegis g$35,gthegtwogcallgoptions gprovidegagpayoffg ofg2×(35−30)gorg$10. g
Thegputgoptiongprovides gnogpayoff.gTheg totalgcostgofg theg options gis g2×3+g4gorg $10.g The
, stockgpricegingA,g$35,gis gthereforegthegbreakevengstockgpricegabovegwhichgtheg positiongis gpro
fitablegbecausegitgis gthegpricegforgwhichgthegcostg ofgtheg options gequals gtheg payoff.
4. Agone-yeargcallgoptiongongagstockgwithgagstrikegpricegofg$30 gcosts g$3;ga gone-
yeargputgoptiong on gthe gstock gwith gagstrike gpricegofg$30gcosts g$4. gSupposegthat gagtrader gbu
ys gtwo gcallgoptions gandg oneg putg option.gThe gbreakeven gstockg pricegbelowg whichg the gtra
dergmakes gagprofitgis
A. $25
B. $28
C. $26
D. $20
Answer:gD
Whengthegstockgpricegis g$20gthegtwo gcallgoptions gprovideg no gpayoff. gTheg put goption gpro
vides gagpayoffgofg30−20gorg$10.gTheg totalgcostg ofgtheg options gis g2×3+g4gorg $10.g Thegstoc
kgpricegingD,g$20,gis gthereforegthegbreakevengstockg pricegbelowg whichgthegpositiongis gpro
fitablegbecausegitgis gthegpricegforgwhichgthegcostg ofgtheg options gequals gtheg payoff.
5. Whichg ofg theg following g is g approximatelyg true g when g sizeg is g measuredg ing terms g ofg th
egunderlying gprincipalgamounts gorgvalueg ofgthegunderlying gassets
A. Thegexchange-tradedgmarketgis gtwicegas gbig gas gthegover-the-countergmarket.
B. Thegover-the-countergmarket gis gtwicegas gbig gas gthegexchange-tradedgmarket.
C. Thegexchange-tradedgmarketgis gtengtimes gas gbig gas gthegover-the-countergmarket.
D. Thegover-the-countergmarketgis gtengtimes gas gbig gas gthegexchange-tradedgmarket.
Answer:gD
ThegOTC gmarketgis gaboutg$600gtrilliongwhereas gthegexchange-
tradedgmarketgis gaboutg$60gtrillion.
6. Whichgofgthegfollowing gbestgdescribes gthegtermg“spotgprice”
A. Thegpricegforgimmediategdelivery
B. Thegpricegforgdeliverygatgagfuturegtime
C. Thegpricegofgangassetgthatghas gbeengdamaged
D. Thegpricegofgrenting gangasset
Answer:gA
Thegspotgpricegis gthegpricegforgimmediategdelivery. gThegfutures gorgforwardgpricegis gthegpri
cegforgdeliverygingthegfuture
,7. Whichgofgthegfollowing gis gtruegaboutgaglong gforwardgcontract
A. Thegcontractgbecomes gmoregvaluablegas gthegpricegofg thegassetgdeclines
B. Thegcontractgbecomes gmoregvaluablegas gthegpricegofg thegassetgrises
C. Thegcontractgis gworthgzerogifgthegpricegofg thegassetgdeclines gaftergthe gcontract gh
as gbeengenteredginto
D. Thegcontractgis gworthgzero gifgthe gpricegof gthegassetgrises gaftergthegcontractghas gbe
engenteredginto
Answer:g B
Aglong gforwardgcontractgis gangagreementgtogbuygthegassetgatgagpredeterminedgprice.gT
hegcontractg becomes gmoregattractivegas gthegmarketg pricegofg thegassetgrises.gThegcontr
actgis gonlygworthgzero gwheng theg predeterminedg pricegin gthe gforwardgcontractgequals gt
he
currentgforwardgpriceg(as gitgusuallygdoes gatgthegbeginning gofgthegcontract).
8. Anginvestorgsells gagfutures gcontractgan gassetgwhengthegfutures gpricegis g$1,500.gEachgcontra
ctgis gong100g units gof gthe gasset.gThegcontractgis gclosedgoutgwhen gthe gfutures gpricegis g$1,5
40.gWhichgofgthegfollowing gis gtrue
A. Theginvestorghas gmadegaggaingofg$4,000
B. Theginvestorghas gmadegagloss gofg$4,000
C. Theginvestorghas gmadegaggaingofg$2,000
D. Theginvestorghas gmadegagloss gofg$2,000
Answer:gB
Anginvestorgwhogbuys g(has gaglong gposition)ghas gaggaingwhengagfutures gpricegincreases.gAngin
vestorgwhogsells g(has gagshortgposition)ghas gagloss gwhengagfutures gpricegincreases.
9. Whichgofgthegfollowing gdescribes gEuropeangoptions?
A. SoldgingEurope
B. PricedgingEuros
C. Exercisablegonlygatgmaturity
D. Calls g(theregaregnogEuropeangputs)
Answer:gC
Europeangoptions gcangbegexercisedgonly gatg maturity. gThis gis gingcontrastg tog Americangopt
ions gwhichgcangbegexercisedgatganygtime.gThegtermg“European” ghas gnothing gtog dog with gg
eographical glocation,gcurrencies,gorgwhether gthegoptiongis gagcallgorgagput.
10. Whichgofgthegfollowing gis gNOTgtrue
A. Agcallgoptionggives gthegholdergthegrightgto gbuy gan gassetgbygagcertaingdategforgagcertain
, price
B. Agputgoptionggives gthegholdergthegrightgto gsellgangassetgbygagcertaingdategforgagcert
aingprice
C. Thegholdergofgagcallgorgputgoption gmustgexercisegthegright gto gsellgorgbuy gangasset
D. Thegholdergofgagforwardgcontractgis gobligatedgtogbuygorgsellgangasset
Answer:gC
Thegholdergofgagcallgorgputg option ghas gtheg rightg to gexercisegtheg optiong butgis gnot grequire
dgtogdogso.gA,gB,gandgCgare gcorrect
11. Whichgofgthegfollowing gis gNOTgtruegaboutgcallgandgputgoptions:
A. AngAmericangoptiongcangbegexercisedgatganygtimegduring gits glife
B. AgEuropeangoptiongcangonlygbegexercisedgonlyg ongtheg maturitygdate
C. Investors gmustgpaygangupfrontgpriceg(thegoptiong premium)gforgangoption gcontract
D. Thegpricegofgagcallgoptiongincreases gas gthegstrikegpricegincreases
Answer:gD
Ag callg optiong is g thegoption g to g buy g for g the g strikeg price. g As g theg strike g pricegincreases g this go
ptiongbecomes gless gattractivegandgis gthereforegless gvaluable.gA,gB,gandgCgaregtrue.
12. Thegpricegofgagstock gongJuly g1gis g$57.g Agtradergbuys g100gcallgoptions gong thegstock gwithga
gstrikegpricegofg$60 gwhengthegoptiongpricegis g$2.gThegoptions garegexercisedgwheng thegsto
ckgpricegis g$65.gThegtrader’s gnetgprofitgis
A. $700
B. $500
C. $300
D. $600
Answer:gC
Thegpayoffgfromgthegoptions gis g100×(65-60)gorg$500.gThegcostgof gtheg options gis g2×100gor
$200.gThegnetgprofitgis gthereforeg500−200gorg$300.
13. Thegpricegofgagstock gongFebruaryg1gis g$124.gAgtrader gsells g200gputgoptions gon gthegstock gwi
thgagstrike gpricegofg$120g when gthegoptiongpricegis g$5.gTheg options garegexercisedgwhengt
hegstockgpricegis g$110.gThegtrader’s gnetg profitgorgloss gis
A. Gaingofg$1,000
B. Loss gofg$2,000
C. Loss gofg$2,800
D. Loss gofg$1,000
gAnswer:gD
GlobalgEdition
Multiple gChoice gTestgBank:gQuestionsgwithgAnswers
1. Agone-yeargforwardgcontract gis gangagreementgwhere
A. Onegsideghas gthegrightgtogbuygangassetgforgagcertaingpricegingoneg year’s gtime.
B. Onegsideghas gthegobligationgtogbuygangassetgforgagcertaingpricegingonegyear’s gtime.
C. Onegsideghas gthegobligationgtogbuygangassetgforgagcertaingpricegatgsomegti
megduring gthegnextgyear.
D. Onegsideghas gthegobligationgtogbuygangassetgforgthegmarketgpricegingonegyear
’s gtime.
Answer:gB
Agone-
yeargforwardgcontractgis gangobligationgtogbuygorgsellgingone gyear’s gtimegforgagpredetermined g
price.gBygcontrast,gangoptiongis gtheg rightg to gbuyg orgsell.
2. Whichgofgthegfollowing gis gNOTgtrue
A. WhengagCBOEgcallgoptiongongIBMgis gexercised,gIBMgissues gmoregstock
B. AngAmericangoptiongcangbegexercisedgatganygtimegduring gits glife
C. Angcallgoptiongwillgalways gbegexercisedgatgmaturitygifg theg underlying gassetgpricegi
s ggreatergthangthegstrikegprice
D. Agputgoptiongwillgalways gbegexercisedgatgmaturity gifgthegstrikeg pricegis ggreatergth
angthegunderlying gassetgprice.
Answer:gA
WhengangIBMgcallgoptiongis gexercisedgthegoptiongsellergmustgbuygshares gingthegmarketg to
gsell gtogthegoptiongbuyer. gIBM gis gnot ginvolvedgin ganyg way.gAnswers gB,gC,gandgD gareg true.
3. Agone-yeargcallgoptiongongagstockgwithgagstrikegpricegofg$30 gcosts g$3;ga gone-
yeargputgoptiong on gthe gstock gwith gagstrike gpricegofg$30gcosts g$4. gSupposegthat gagtrader gbu
ys gtwo gcallgoptions gandg oneg putg option.gThe gbreakeven gstockg pricegaboveg whichg theg tra
dergmakes gagprofitgis
A. $35
B. $40
C. $30
D. $36
Answer:gA
Whengthegstockgpricegis g$35,gthegtwogcallgoptions gprovidegagpayoffg ofg2×(35−30)gorg$10. g
Thegputgoptiongprovides gnogpayoff.gTheg totalgcostgofg theg options gis g2×3+g4gorg $10.g The
, stockgpricegingA,g$35,gis gthereforegthegbreakevengstockgpricegabovegwhichgtheg positiongis gpro
fitablegbecausegitgis gthegpricegforgwhichgthegcostg ofgtheg options gequals gtheg payoff.
4. Agone-yeargcallgoptiongongagstockgwithgagstrikegpricegofg$30 gcosts g$3;ga gone-
yeargputgoptiong on gthe gstock gwith gagstrike gpricegofg$30gcosts g$4. gSupposegthat gagtrader gbu
ys gtwo gcallgoptions gandg oneg putg option.gThe gbreakeven gstockg pricegbelowg whichg the gtra
dergmakes gagprofitgis
A. $25
B. $28
C. $26
D. $20
Answer:gD
Whengthegstockgpricegis g$20gthegtwo gcallgoptions gprovideg no gpayoff. gTheg put goption gpro
vides gagpayoffgofg30−20gorg$10.gTheg totalgcostg ofgtheg options gis g2×3+g4gorg $10.g Thegstoc
kgpricegingD,g$20,gis gthereforegthegbreakevengstockg pricegbelowg whichgthegpositiongis gpro
fitablegbecausegitgis gthegpricegforgwhichgthegcostg ofgtheg options gequals gtheg payoff.
5. Whichg ofg theg following g is g approximatelyg true g when g sizeg is g measuredg ing terms g ofg th
egunderlying gprincipalgamounts gorgvalueg ofgthegunderlying gassets
A. Thegexchange-tradedgmarketgis gtwicegas gbig gas gthegover-the-countergmarket.
B. Thegover-the-countergmarket gis gtwicegas gbig gas gthegexchange-tradedgmarket.
C. Thegexchange-tradedgmarketgis gtengtimes gas gbig gas gthegover-the-countergmarket.
D. Thegover-the-countergmarketgis gtengtimes gas gbig gas gthegexchange-tradedgmarket.
Answer:gD
ThegOTC gmarketgis gaboutg$600gtrilliongwhereas gthegexchange-
tradedgmarketgis gaboutg$60gtrillion.
6. Whichgofgthegfollowing gbestgdescribes gthegtermg“spotgprice”
A. Thegpricegforgimmediategdelivery
B. Thegpricegforgdeliverygatgagfuturegtime
C. Thegpricegofgangassetgthatghas gbeengdamaged
D. Thegpricegofgrenting gangasset
Answer:gA
Thegspotgpricegis gthegpricegforgimmediategdelivery. gThegfutures gorgforwardgpricegis gthegpri
cegforgdeliverygingthegfuture
,7. Whichgofgthegfollowing gis gtruegaboutgaglong gforwardgcontract
A. Thegcontractgbecomes gmoregvaluablegas gthegpricegofg thegassetgdeclines
B. Thegcontractgbecomes gmoregvaluablegas gthegpricegofg thegassetgrises
C. Thegcontractgis gworthgzerogifgthegpricegofg thegassetgdeclines gaftergthe gcontract gh
as gbeengenteredginto
D. Thegcontractgis gworthgzero gifgthe gpricegof gthegassetgrises gaftergthegcontractghas gbe
engenteredginto
Answer:g B
Aglong gforwardgcontractgis gangagreementgtogbuygthegassetgatgagpredeterminedgprice.gT
hegcontractg becomes gmoregattractivegas gthegmarketg pricegofg thegassetgrises.gThegcontr
actgis gonlygworthgzero gwheng theg predeterminedg pricegin gthe gforwardgcontractgequals gt
he
currentgforwardgpriceg(as gitgusuallygdoes gatgthegbeginning gofgthegcontract).
8. Anginvestorgsells gagfutures gcontractgan gassetgwhengthegfutures gpricegis g$1,500.gEachgcontra
ctgis gong100g units gof gthe gasset.gThegcontractgis gclosedgoutgwhen gthe gfutures gpricegis g$1,5
40.gWhichgofgthegfollowing gis gtrue
A. Theginvestorghas gmadegaggaingofg$4,000
B. Theginvestorghas gmadegagloss gofg$4,000
C. Theginvestorghas gmadegaggaingofg$2,000
D. Theginvestorghas gmadegagloss gofg$2,000
Answer:gB
Anginvestorgwhogbuys g(has gaglong gposition)ghas gaggaingwhengagfutures gpricegincreases.gAngin
vestorgwhogsells g(has gagshortgposition)ghas gagloss gwhengagfutures gpricegincreases.
9. Whichgofgthegfollowing gdescribes gEuropeangoptions?
A. SoldgingEurope
B. PricedgingEuros
C. Exercisablegonlygatgmaturity
D. Calls g(theregaregnogEuropeangputs)
Answer:gC
Europeangoptions gcangbegexercisedgonly gatg maturity. gThis gis gingcontrastg tog Americangopt
ions gwhichgcangbegexercisedgatganygtime.gThegtermg“European” ghas gnothing gtog dog with gg
eographical glocation,gcurrencies,gorgwhether gthegoptiongis gagcallgorgagput.
10. Whichgofgthegfollowing gis gNOTgtrue
A. Agcallgoptionggives gthegholdergthegrightgto gbuy gan gassetgbygagcertaingdategforgagcertain
, price
B. Agputgoptionggives gthegholdergthegrightgto gsellgangassetgbygagcertaingdategforgagcert
aingprice
C. Thegholdergofgagcallgorgputgoption gmustgexercisegthegright gto gsellgorgbuy gangasset
D. Thegholdergofgagforwardgcontractgis gobligatedgtogbuygorgsellgangasset
Answer:gC
Thegholdergofgagcallgorgputg option ghas gtheg rightg to gexercisegtheg optiong butgis gnot grequire
dgtogdogso.gA,gB,gandgCgare gcorrect
11. Whichgofgthegfollowing gis gNOTgtruegaboutgcallgandgputgoptions:
A. AngAmericangoptiongcangbegexercisedgatganygtimegduring gits glife
B. AgEuropeangoptiongcangonlygbegexercisedgonlyg ongtheg maturitygdate
C. Investors gmustgpaygangupfrontgpriceg(thegoptiong premium)gforgangoption gcontract
D. Thegpricegofgagcallgoptiongincreases gas gthegstrikegpricegincreases
Answer:gD
Ag callg optiong is g thegoption g to g buy g for g the g strikeg price. g As g theg strike g pricegincreases g this go
ptiongbecomes gless gattractivegandgis gthereforegless gvaluable.gA,gB,gandgCgaregtrue.
12. Thegpricegofgagstock gongJuly g1gis g$57.g Agtradergbuys g100gcallgoptions gong thegstock gwithga
gstrikegpricegofg$60 gwhengthegoptiongpricegis g$2.gThegoptions garegexercisedgwheng thegsto
ckgpricegis g$65.gThegtrader’s gnetgprofitgis
A. $700
B. $500
C. $300
D. $600
Answer:gC
Thegpayoffgfromgthegoptions gis g100×(65-60)gorg$500.gThegcostgof gtheg options gis g2×100gor
$200.gThegnetgprofitgis gthereforeg500−200gorg$300.
13. Thegpricegofgagstock gongFebruaryg1gis g$124.gAgtrader gsells g200gputgoptions gon gthegstock gwi
thgagstrike gpricegofg$120g when gthegoptiongpricegis g$5.gTheg options garegexercisedgwhengt
hegstockgpricegis g$110.gThegtrader’s gnetg profitgorgloss gis
A. Gaingofg$1,000
B. Loss gofg$2,000
C. Loss gofg$2,800
D. Loss gofg$1,000
gAnswer:gD
