Hull: Options, Futures, and Other Derivatives, Ninth
RY RY RY RY RY RY
Edition, Global Edition
RY RY RY
Multiple Choice Test Bank: Questions with Answers
RY RY RY RY RY RY
1. A RYone-year RYforward RYcontract RYis RYan RYagreement RYwhere
A. One RYside RYhas RYthe RYright RYto RYbuy RYan RYasset RYfor RYa RYcertain RYprice RYin RYone RYyear’s RYtime.
B. One RYside RYhas RYthe RYobligation RYto RYbuy RYan RYasset RYfor RYa RYcertain RYprice RYin RYone RYyear’s
RYtime.
C. One RYside RYhas RYthe RYobligation RYto RYbuy RYan RYasset RYfor RYa RYcertain RYprice RYat
RYsome RYtime RYduring RYthe RYnext RYyear.
D. One RYside RYhas RYthe RYobligation RYto RYbuy RYan RYasset RYfor RYthe RYmarket RYprice RYin
RYone RYyear’s RYtime.
Answer: RYB
A RYone-year RYforward RYcontract RYis RYan RYobligation RYto RYbuy RYor RYsell RYin RYone RYyear’s RYtime RYfor RYa
RYpredetermined RYprice. RYBy RYcontrast, RYan RYoption RYis RYthe RYright RYto RYbuy RYor RYsell.
2. Which RYof RYthe RYfollowing RYis RYNOT RYtrue
A. When RYa RYCBOE RYcall RYoption RYon RYIBM RYis RYexercised, RYIBM RYissues RYmore RYstock
B. An RYAmerican RYoption RYcan RYbe RYexercised RYat RYany RYtime RYduring RYits RYlife
C. An RYcall RYoption RYwill RYalways RYbe RYexercised RYat RYmaturity RYif RYthe RYunderlying RYasset
RYprice RYis RYgreater RYthan RYthe RYstrike RYprice
D. A RYput RYoption RYwill RYalways RYbe RYexercised RYat RYmaturity RYif RYthe RYstrike RYprice RYis
RYgreater RYthan RYthe RYunderlying RYasset RYprice.
Answer: RYA
When RYan RYIBM RYcall RYoption RYis RYexercised RYthe RYoption RYseller RYmust RYbuy RYshares RYin RYthe
RYmarket RYto RYsell RYto RYthe RYoption RYbuyer. RYIBM RYis RYnot RYinvolved RYin RYany RYway. RYAnswers
RYB, RYC, RYand RYD RYare RYtrue.
3. A RYone-year RYcall RYoption RYon RYa RYstock RYwith RYa RYstrike RYprice RYof RY$30 RYcosts RY$3; RYa RYone-year
RYput RYoption RYon RYthe RYstock RYwith RYa RYstrike RYprice RYof RY$30 RYcosts RY$4. RYSuppose RYthat RYa RYtrader
RYbuys RYtwo RYcall RYoptions RYand RYone RYput RYoption. RYThe RYbreakeven RYstock RYprice RYabove
RYwhich RYthe RYtrader RYmakes RYa RYprofit RYis
A. $35
B. $40
C. $30
D. $36
Answer: RYA
When RYthe RYstock RYprice RYis RY$35, RYthe RYtwo RYcall RYoptions RYprovide RYa RYpayoff RYof RY2×(35−30)
RYor RY$10. RYThe RYput RYoption RYprovides RYno RYpayoff. RYThe RYtotal RYcost RYof RYthe RYoptions RYis
RY2×3+ RY4 RYor RY$10. R Y The
, stock RYprice RYin RYA, RY$35, RYis RYtherefore RYthe RYbreakeven RYstock RYprice RYabove RYwhich RYthe
RYposition RYis RYprofitable RYbecause RYit RYis RYthe RYprice RYfor RYwhich RYthe RYcost RYof RYthe RYoptions
RYequals RYthe RYpayoff.
4. A RYone-year RYcall RYoption RYon RYa RYstock RYwith RYa RYstrike RYprice RYof RY$30 RYcosts RY$3; RYa RYone-year
RYput RYoption RYon RYthe RYstock RYwith RYa RYstrike RYprice RYof RY$30 RYcosts RY$4. RYSuppose RYthat RYa RYtrader
RYbuys RYtwo RYcall RYoptions RYand RYone RYput RYoption. RYThe RYbreakeven RYstock RYprice RYbelow
RYwhich RYthe RYtrader RYmakes RYa RYprofit RYis
A. $25
B. $28
C. $26
D. $20
Answer: RYD
When RYthe RYstock RYprice RYis RY$20 RYthe RYtwo RYcall RYoptions RYprovide RYno RYpayoff. RYThe RYput
RYoption RYprovides RYa RYpayoff RYof RY30−20 RYor RY$10. RYThe RYtotal RYcost RYof RYthe RYoptions RYis
RY2×3+ RY4 RYor RY$10. R Y The RYstock RYprice RYin RYD, RY$20, RYis RYtherefore RYthe RYbreakeven RYstock
RYprice RYbelow RYwhich RYthe RYposition RYis RYprofitable RYbecause RYit RYis RYthe RYprice RYfor RYwhich
RYthe RYcost RYof RYthe RYoptions RYequals RYthe RYpayoff.
5. Which R Y of R Y the R Y following R Y is R Y approximately R Y true R Y when R Y size R Y is R Y measured
R Y in R Y terms R Y of R Y the RYunderlying RYprincipal RYamounts RYor RYvalue RYof RYthe RYunderlying
RYassets
A. The RYexchange-traded RYmarket RYis RYtwice RYas RYbig RYas RYthe RYover-the-counter RYmarket.
B. The RYover-the-counter RYmarket RYis RYtwice RYas RYbig RYas RYthe RYexchange-traded RYmarket.
C. The RYexchange-traded RYmarket RYis RYten RYtimes RYas RYbig RYas RYthe RYover-the-counter
RYmarket.
D. The RYover-the-counter RYmarket RYis RYten RYtimes RYas RYbig RYas RYthe RYexchange-traded
RYmarket.
Answer: RYD
The RYOTC RYmarket RYis RYabout RY$600 RYtrillion RYwhereas RYthe RYexchange-traded RYmarket RYis RYabout
RY$60 RYtrillion.
6. Which RYof RYthe RYfollowing RYbest RYdescribes RYthe RYterm RY“spot RYprice”
A. The RYprice RYfor RYimmediate RYdelivery
B. The RYprice RYfor RYdelivery RYat RYa RYfuture RYtime
C. The RYprice RYof RYan RYasset RYthat RYhas RYbeen RYdamaged
D. The RYprice RYof RYrenting RYan RYasset
Answer: RYA
The RYspot RYprice RYis RYthe RYprice RYfor RYimmediate RYdelivery. RYThe RYfutures RYor RYforward RYprice RYis
RYthe RYprice RYfor RYdelivery RYin RYthe RYfuture
,7. Which RYof RYthe RYfollowing RYis RYtrue RYabout RYa RYlong RYforward RYcontract
A. The RYcontract RYbecomes RYmore RYvaluable RYas RYthe RYprice RYof RYthe RYasset RYdeclines
B. The RYcontract RYbecomes RYmore RYvaluable RYas RYthe RYprice RYof RYthe RYasset RYrises
C. The RYcontract RYis RYworth RYzero RYif RYthe RYprice RYof RYthe RYasset RYdeclines RYafter RYthe
RYcontract RYhas RYbeen RYentered RYinto
D. The RYcontract RYis RYworth RYzero RYif RYthe RYprice RYof RYthe RYasset RYrises RYafter RYthe RYcontract
RYhas RYbeen RYentered RYinto
Answer: R Y B
A RYlong RYforward RYcontract RYis RYan RYagreement RYto RYbuy RYthe RYasset RYat RYa RYpredetermined
RYprice. RYThe RYcontract RYbecomes RYmore RYattractive RYas RYthe RYmarket RYprice RYof RYthe RYasset
RYrises. RYThe RYcontract RYis RYonly RYworth RYzero RYwhen RYthe RYpredetermined RYprice RYin RYthe
RYforward RYcontract RYequals RYthe
current RYforward RYprice RY(as RYit RYusually RYdoes RYat RYthe RYbeginning RYof RYthe RYcontract).
8. An RYinvestor RYsells RYa RYfutures RYcontract RYan RYasset RYwhen RYthe RYfutures RYprice RYis RY$1,500. RYEach
RYcontract RYis RYon RY100 RYunits RYof RYthe RYasset. RYThe RYcontract RYis RYclosed RYout RYwhen RYthe
RYfutures RYprice RYis RY$1,540. RYWhich RYof RYthe RYfollowing RYis RYtrue
A. The RYinvestor RYhas RYmade RYa RYgain RYof RY$4,000
B. The RYinvestor RYhas RYmade RYa RYloss RYof RY$4,000
C. The RYinvestor RYhas RYmade RYa RYgain RYof RY$2,000
D. The RYinvestor RYhas RYmade RYa RYloss RYof RY$2,000
Answer: RYB
An RYinvestor RYwho RYbuys RY(has RYa RYlong RYposition) RYhas RYa RYgain RYwhen RYa RYfutures RYprice
RYincreases. RYAn RYinvestor RYwho RYsells RY(has RYa RYshort RYposition) RYhas RYa RYloss RYwhen RYa RYfutures
RYprice RYincreases.
9. Which RYof RYthe RYfollowing RYdescribes RYEuropean RYoptions?
A. Sold RYin RYEurope
B. Priced RYin RYEuros
C. Exercisable RYonly RYat RYmaturity
D. Calls RY(there RYare RYno RYEuropean RYputs)
Answer: RYC
European RYoptions RYcan RYbe RYexercised RYonly RYat RYmaturity. RYThis RYis RYin RYcontrast RYto
RYAmerican RYoptions RYwhich RYcan RYbe RYexercised RYat RYany RYtime. RYThe RYterm RY“European” RYhas
RYnothing RYto RYdo RYwith RYgeographical RYlocation, RYcurrencies, RYor RYwhether RYthe RYoption RYis RYa
RYcall RYor RYa RYput.
10. Which RYof RYthe RYfollowing RYis RYNOT RYtrue
A. A RYcall RYoption RYgives RYthe RYholder RYthe RYright RYto RYbuy RYan RYasset RYby RYa RYcertain RYdate RYfor RYa
, certain
RY
RY RY RY RY RY RY
Edition, Global Edition
RY RY RY
Multiple Choice Test Bank: Questions with Answers
RY RY RY RY RY RY
1. A RYone-year RYforward RYcontract RYis RYan RYagreement RYwhere
A. One RYside RYhas RYthe RYright RYto RYbuy RYan RYasset RYfor RYa RYcertain RYprice RYin RYone RYyear’s RYtime.
B. One RYside RYhas RYthe RYobligation RYto RYbuy RYan RYasset RYfor RYa RYcertain RYprice RYin RYone RYyear’s
RYtime.
C. One RYside RYhas RYthe RYobligation RYto RYbuy RYan RYasset RYfor RYa RYcertain RYprice RYat
RYsome RYtime RYduring RYthe RYnext RYyear.
D. One RYside RYhas RYthe RYobligation RYto RYbuy RYan RYasset RYfor RYthe RYmarket RYprice RYin
RYone RYyear’s RYtime.
Answer: RYB
A RYone-year RYforward RYcontract RYis RYan RYobligation RYto RYbuy RYor RYsell RYin RYone RYyear’s RYtime RYfor RYa
RYpredetermined RYprice. RYBy RYcontrast, RYan RYoption RYis RYthe RYright RYto RYbuy RYor RYsell.
2. Which RYof RYthe RYfollowing RYis RYNOT RYtrue
A. When RYa RYCBOE RYcall RYoption RYon RYIBM RYis RYexercised, RYIBM RYissues RYmore RYstock
B. An RYAmerican RYoption RYcan RYbe RYexercised RYat RYany RYtime RYduring RYits RYlife
C. An RYcall RYoption RYwill RYalways RYbe RYexercised RYat RYmaturity RYif RYthe RYunderlying RYasset
RYprice RYis RYgreater RYthan RYthe RYstrike RYprice
D. A RYput RYoption RYwill RYalways RYbe RYexercised RYat RYmaturity RYif RYthe RYstrike RYprice RYis
RYgreater RYthan RYthe RYunderlying RYasset RYprice.
Answer: RYA
When RYan RYIBM RYcall RYoption RYis RYexercised RYthe RYoption RYseller RYmust RYbuy RYshares RYin RYthe
RYmarket RYto RYsell RYto RYthe RYoption RYbuyer. RYIBM RYis RYnot RYinvolved RYin RYany RYway. RYAnswers
RYB, RYC, RYand RYD RYare RYtrue.
3. A RYone-year RYcall RYoption RYon RYa RYstock RYwith RYa RYstrike RYprice RYof RY$30 RYcosts RY$3; RYa RYone-year
RYput RYoption RYon RYthe RYstock RYwith RYa RYstrike RYprice RYof RY$30 RYcosts RY$4. RYSuppose RYthat RYa RYtrader
RYbuys RYtwo RYcall RYoptions RYand RYone RYput RYoption. RYThe RYbreakeven RYstock RYprice RYabove
RYwhich RYthe RYtrader RYmakes RYa RYprofit RYis
A. $35
B. $40
C. $30
D. $36
Answer: RYA
When RYthe RYstock RYprice RYis RY$35, RYthe RYtwo RYcall RYoptions RYprovide RYa RYpayoff RYof RY2×(35−30)
RYor RY$10. RYThe RYput RYoption RYprovides RYno RYpayoff. RYThe RYtotal RYcost RYof RYthe RYoptions RYis
RY2×3+ RY4 RYor RY$10. R Y The
, stock RYprice RYin RYA, RY$35, RYis RYtherefore RYthe RYbreakeven RYstock RYprice RYabove RYwhich RYthe
RYposition RYis RYprofitable RYbecause RYit RYis RYthe RYprice RYfor RYwhich RYthe RYcost RYof RYthe RYoptions
RYequals RYthe RYpayoff.
4. A RYone-year RYcall RYoption RYon RYa RYstock RYwith RYa RYstrike RYprice RYof RY$30 RYcosts RY$3; RYa RYone-year
RYput RYoption RYon RYthe RYstock RYwith RYa RYstrike RYprice RYof RY$30 RYcosts RY$4. RYSuppose RYthat RYa RYtrader
RYbuys RYtwo RYcall RYoptions RYand RYone RYput RYoption. RYThe RYbreakeven RYstock RYprice RYbelow
RYwhich RYthe RYtrader RYmakes RYa RYprofit RYis
A. $25
B. $28
C. $26
D. $20
Answer: RYD
When RYthe RYstock RYprice RYis RY$20 RYthe RYtwo RYcall RYoptions RYprovide RYno RYpayoff. RYThe RYput
RYoption RYprovides RYa RYpayoff RYof RY30−20 RYor RY$10. RYThe RYtotal RYcost RYof RYthe RYoptions RYis
RY2×3+ RY4 RYor RY$10. R Y The RYstock RYprice RYin RYD, RY$20, RYis RYtherefore RYthe RYbreakeven RYstock
RYprice RYbelow RYwhich RYthe RYposition RYis RYprofitable RYbecause RYit RYis RYthe RYprice RYfor RYwhich
RYthe RYcost RYof RYthe RYoptions RYequals RYthe RYpayoff.
5. Which R Y of R Y the R Y following R Y is R Y approximately R Y true R Y when R Y size R Y is R Y measured
R Y in R Y terms R Y of R Y the RYunderlying RYprincipal RYamounts RYor RYvalue RYof RYthe RYunderlying
RYassets
A. The RYexchange-traded RYmarket RYis RYtwice RYas RYbig RYas RYthe RYover-the-counter RYmarket.
B. The RYover-the-counter RYmarket RYis RYtwice RYas RYbig RYas RYthe RYexchange-traded RYmarket.
C. The RYexchange-traded RYmarket RYis RYten RYtimes RYas RYbig RYas RYthe RYover-the-counter
RYmarket.
D. The RYover-the-counter RYmarket RYis RYten RYtimes RYas RYbig RYas RYthe RYexchange-traded
RYmarket.
Answer: RYD
The RYOTC RYmarket RYis RYabout RY$600 RYtrillion RYwhereas RYthe RYexchange-traded RYmarket RYis RYabout
RY$60 RYtrillion.
6. Which RYof RYthe RYfollowing RYbest RYdescribes RYthe RYterm RY“spot RYprice”
A. The RYprice RYfor RYimmediate RYdelivery
B. The RYprice RYfor RYdelivery RYat RYa RYfuture RYtime
C. The RYprice RYof RYan RYasset RYthat RYhas RYbeen RYdamaged
D. The RYprice RYof RYrenting RYan RYasset
Answer: RYA
The RYspot RYprice RYis RYthe RYprice RYfor RYimmediate RYdelivery. RYThe RYfutures RYor RYforward RYprice RYis
RYthe RYprice RYfor RYdelivery RYin RYthe RYfuture
,7. Which RYof RYthe RYfollowing RYis RYtrue RYabout RYa RYlong RYforward RYcontract
A. The RYcontract RYbecomes RYmore RYvaluable RYas RYthe RYprice RYof RYthe RYasset RYdeclines
B. The RYcontract RYbecomes RYmore RYvaluable RYas RYthe RYprice RYof RYthe RYasset RYrises
C. The RYcontract RYis RYworth RYzero RYif RYthe RYprice RYof RYthe RYasset RYdeclines RYafter RYthe
RYcontract RYhas RYbeen RYentered RYinto
D. The RYcontract RYis RYworth RYzero RYif RYthe RYprice RYof RYthe RYasset RYrises RYafter RYthe RYcontract
RYhas RYbeen RYentered RYinto
Answer: R Y B
A RYlong RYforward RYcontract RYis RYan RYagreement RYto RYbuy RYthe RYasset RYat RYa RYpredetermined
RYprice. RYThe RYcontract RYbecomes RYmore RYattractive RYas RYthe RYmarket RYprice RYof RYthe RYasset
RYrises. RYThe RYcontract RYis RYonly RYworth RYzero RYwhen RYthe RYpredetermined RYprice RYin RYthe
RYforward RYcontract RYequals RYthe
current RYforward RYprice RY(as RYit RYusually RYdoes RYat RYthe RYbeginning RYof RYthe RYcontract).
8. An RYinvestor RYsells RYa RYfutures RYcontract RYan RYasset RYwhen RYthe RYfutures RYprice RYis RY$1,500. RYEach
RYcontract RYis RYon RY100 RYunits RYof RYthe RYasset. RYThe RYcontract RYis RYclosed RYout RYwhen RYthe
RYfutures RYprice RYis RY$1,540. RYWhich RYof RYthe RYfollowing RYis RYtrue
A. The RYinvestor RYhas RYmade RYa RYgain RYof RY$4,000
B. The RYinvestor RYhas RYmade RYa RYloss RYof RY$4,000
C. The RYinvestor RYhas RYmade RYa RYgain RYof RY$2,000
D. The RYinvestor RYhas RYmade RYa RYloss RYof RY$2,000
Answer: RYB
An RYinvestor RYwho RYbuys RY(has RYa RYlong RYposition) RYhas RYa RYgain RYwhen RYa RYfutures RYprice
RYincreases. RYAn RYinvestor RYwho RYsells RY(has RYa RYshort RYposition) RYhas RYa RYloss RYwhen RYa RYfutures
RYprice RYincreases.
9. Which RYof RYthe RYfollowing RYdescribes RYEuropean RYoptions?
A. Sold RYin RYEurope
B. Priced RYin RYEuros
C. Exercisable RYonly RYat RYmaturity
D. Calls RY(there RYare RYno RYEuropean RYputs)
Answer: RYC
European RYoptions RYcan RYbe RYexercised RYonly RYat RYmaturity. RYThis RYis RYin RYcontrast RYto
RYAmerican RYoptions RYwhich RYcan RYbe RYexercised RYat RYany RYtime. RYThe RYterm RY“European” RYhas
RYnothing RYto RYdo RYwith RYgeographical RYlocation, RYcurrencies, RYor RYwhether RYthe RYoption RYis RYa
RYcall RYor RYa RYput.
10. Which RYof RYthe RYfollowing RYis RYNOT RYtrue
A. A RYcall RYoption RYgives RYthe RYholder RYthe RYright RYto RYbuy RYan RYasset RYby RYa RYcertain RYdate RYfor RYa
, certain
RY
