An Introduction to Derivatives and Risk Management – Chance & Brooks | 10th Edition | Full Test Bank with End-of-Chapter Answers

DERIVATIVES AND RISK MANAGEMENT
An Introduction to Derivatives and Risk Management – Chance &

Brooks | 10th Edition | Full Test Bank with End-of-Chapter Answers


Testbankscove

, CHAPTER 1: INTRODUCTION n n




MULTIPLE CHOICE TEST QUESTIONS
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1. The market value of the derivatives contracts worldwide totals
n n n n n n n n

a. less than a trillion dollars n n n n

b. in the hundreds of trillion dollars
n n n n n

c. over a trillion dollars but less than a hundred trillion
n n n n n n n n n

d. over quadrillion dollars n n

e. none of the above n n n




2. Cash markets are also known as
n n n n n

a. speculative markets n

b. spot markets n

c. derivative markets n

d. dollar markets n

e. none of the above n n n




3. A call option gives the holder
n n n n n

a. the right to buy something n n n n

b. the right to sell something n n n n

c. the obligation to buy something n n n n

d. the obligation to sell something n n n n

e. none of the above n n n




4. Which of the following instruments are contracts but are not securities
n n n n n n n n n n

a. stocks
b. options
c. swaps
d. a and b n n

e. b and c n n




5. The positive relationship between risk and return is called
n n n n n n n n

a. expected return n

b. market efficiency n

c. the law of one price n n n n

d. arbitrage
e. none of the above n n n




6. A transaction in which an investor holds a position in the spot market and sells a futures contract or writes
n n n n n n n n n n n n n n n n n n n

a call is
n n n

a. a gamble n

b. a speculative positionn n

c. a hedge n

d. a risk-free transaction
n n

e. none of the above n n n




7. Which of the following are advantages of derivatives?
n n n n n n n

a. lower transaction costs than securities and commodities
n n n n n n

b. reveal information about expected prices and volatility n n n n n n

c. help control risk n n

d. make spot prices stay closer to their true values n n n n n n n n




10th nEdition: n Chapter 151 Test nBank
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©
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, e. all of the above
n n n




8. A forward contract has which of the following characteristics?
n n n n n n n n

a. has a buyer and a seller n n n n n

b. trades on an organized exchange n n n n

c. has a daily settlement n n n

d. gives the right but not the obligation to buy
n n n n n n n n

e. all of the above n n n




9. Options on futures are also known as
n n n n n n

a. spot options n

b. commodity options n

c. exchange options n

d. security options n

e. none of the above n n n




10. A market in which the price equals the true economic value
n n n n n n n n n n

a. is risk-free n

b. has high expected returns n n n

c. is organized n

d. is efficient n

e. all of the above n n n




11. Which of the following trade on organized exchanges?
n n n n n n n

a. caps
b. forwards
c. options
d. swaps
e. none of the above n n n




12. Which of the following markets is/are said to provide price discovery?
n n n n n n n n n n

a. futures
b. forwards
c. options
d. a and b n n

e. b and c n n




13. Investors who do not consider risk in their decisions are said to be
n n n n n n n n n n n n

a. speculating
b. short selling n

c. risk neutral n

d. traders
e. none of the above n n n




14. Which of the following statements is not true about the law of one price
n n n n n n n n n n n n n

a. investors prefer more wealth to less n n n n n

b. investments that offer the same return in all states must pay the risk-free rate
n n n n n n n n n n n n n

c. if two investment opportunities offer equivalent outcomes, they must have the same price
n n n n n n n n n n n n

d. investors are risk neutral n n n

e. none of the above n n n




15. Which of the following contracts obligates a buyer to buy or sell something at a later date?
n n n n n n n n n n n n n n n n



10th nEdition: n Chapter 152 Test nBank
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©
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, a. call
b. futures
c. cap
d. put
e. swaption

16. The process of creating new financial products is sometimes referred to as
n n n n n n n n n n n

a. financial frontiering n

b. financial engineering n

c. financial modeling n

d. financial innovation n

e. none of the above n n n




17. The process of selling borrowed assets with the intention of buying them back at a later date and
n n n n n n n n n n n n n n n n n

nlower price is referred to as
n n n n n

a. longing an asset n n

b. asset flipping n

c. shorting
d. anticipated price fall arbitrage n n n

e. none of the above n n n




18. In which one of the following types of contract between a seller and a buyer does the seller agree to sell
n n n n n n n n n n n n n n n n n n n n

na specified asset to the buyer today and then buy it back at a specified time in the future at an agreed
n n n n n n n n n n n n n n n n n n n n n

nfuture price.
n

a. repurchase agreement n

b. short selling n

c. swap
d. call
e. none of the above n n n




19. The expected return minus the risk-free rate is called
n n n n n n n n

a. the risk premium n n

b. the percentage returnn n

c. the asset’s beta n n

d. the return premium n n

e. none of the above n n n




20. When the law of one price is violated in that the same good is selling for two different
n n n n n n n n n n n n n n n n n

nprices, an opportunity for what type of transaction is created?
n n n n n n n n n

a. return-to-equilibrium transaction n

b. risk-assuming transaction n

c. speculative transaction n

d. arbitrage transaction n

e. none of the above n n n




10th nEdition: n Chapter 153 Test nBank
n1 n2015 nCengage nLearning. nAll nRights nReserved. nMay nnot nbe nscanned, ncopied nor nduplicated, nor nposted nto na npublicly naccessible nwebsite, nin
©
whole n or nin npart.
n