FIN 420 FINAL EXAM COMPREHENSIVE
CORPORATE FINANCE VALUATION AND
INVESTMENT DECISION QUESTIONS AND
SOLUTIONS
●● When the net profit on both the futures and cash position equals zero,
this is known as a(n):
Cross hedge.
Return hedge.
Perfect hedge.
Imperfect hedge.
Basis hedge.
Answer: Perfect Hedge
●● Eurodollars are?
U.S. dollar-denominated deposits in banks located outside the U.S.
Euro-denominated deposits in banks located outside of the Eurozone
Euro-denominated deposits in banks located within the Eurozone
U.S. dollar-denominated deposits in banks located within the U.S.
Answer: U.S. dollar-denominated deposits in banks located outside the
U.S.
,●● The basis:
Are typically fixed over time
Forward rate less the futures rate
Are used only by speculators
Futures rate less the cash rate
Answer: Futures rate less the cash rate
●● Which of the following would generally not be considered a
speculator?
Hedger
Day trader
Scalper
Position trader
All of these are consider speculators.
Answer: Hedger
●● The daily settlement process that credits gains or deducts losses from
a futures customer s account is called:
The variation margin.
Marking-to-market.
The gain/loss ratio.
The maintenance margin.
The initial margin.
, Answer: Marking-to-Market
●● The basis on a futures contract is defined as:
The cash price minus the forward price.
The forward price minus the cash price.
The futures price minus the cash price.
The cash price minus the futures price.
None of the above.
Answer: The cash price minus the futures price
●● 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?
.95%
1%
1.2%
1.45%
None of the above
Answer: .95%
●● Which of the following primarily takes futures positions that are
outstanding for just minutes?
Hedger
CORPORATE FINANCE VALUATION AND
INVESTMENT DECISION QUESTIONS AND
SOLUTIONS
●● When the net profit on both the futures and cash position equals zero,
this is known as a(n):
Cross hedge.
Return hedge.
Perfect hedge.
Imperfect hedge.
Basis hedge.
Answer: Perfect Hedge
●● Eurodollars are?
U.S. dollar-denominated deposits in banks located outside the U.S.
Euro-denominated deposits in banks located outside of the Eurozone
Euro-denominated deposits in banks located within the Eurozone
U.S. dollar-denominated deposits in banks located within the U.S.
Answer: U.S. dollar-denominated deposits in banks located outside the
U.S.
,●● The basis:
Are typically fixed over time
Forward rate less the futures rate
Are used only by speculators
Futures rate less the cash rate
Answer: Futures rate less the cash rate
●● Which of the following would generally not be considered a
speculator?
Hedger
Day trader
Scalper
Position trader
All of these are consider speculators.
Answer: Hedger
●● The daily settlement process that credits gains or deducts losses from
a futures customer s account is called:
The variation margin.
Marking-to-market.
The gain/loss ratio.
The maintenance margin.
The initial margin.
, Answer: Marking-to-Market
●● The basis on a futures contract is defined as:
The cash price minus the forward price.
The forward price minus the cash price.
The futures price minus the cash price.
The cash price minus the futures price.
None of the above.
Answer: The cash price minus the futures price
●● 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?
.95%
1%
1.2%
1.45%
None of the above
Answer: .95%
●● Which of the following primarily takes futures positions that are
outstanding for just minutes?
Hedger
