Test Bank for Introduction to Derivatives and Risk Management, 10th Edition ( Chance, 2019), Chapter 1-15 | All Chapters

TEST BANK
Introduction to Derivatives and Risk Management
By Don M. Chance, Robert Brooks
LU
XE
LI
BR
AR
Y

, TABLE OF CONTENT

Chapter 1. Introduction
Chapter 2. Structure of Derivatives Markets
Part I. Options
Chapter 3. Principles of Option Pricing
Chapter 4. Option Pricing Models
Chapter 5. Option Pricing Models
Chapter 6. Basic Option Strategies
LU
Chapter 7. Advanced Option Strategies
Part II. Forwards, Futures, and Swaps
Chapter 8. Principles of Pricing Forwards, Futures, and Options on Futures
Chapter 9. Futures Arbitrage Strategies
XE
Chapter 10. Forward and Futures Hedging, Spread, and Target Strategies
Chapter 11. Swaps
Part III. Advanced Topics
LI
Chapter 12. Interest Rate Forwards and Options
Chapter 13. Advanced Derivatives and Strategies
Chapter 14. Financial Risk Management Techniques and Applications
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Chapter 15. Managing Risk in an Organization
Appendix B. References
Appendix C. List of Symbols
Appendix D. List of Important Formulas
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CHAPTER 1: INTRODUCTION

MULTIPLE CHOICE TEST QUESTIONS

1. The market value of the derivatives contracts worldwide totals
a. less than a trillion dollars
b. in the hundreds of trillion dollars
c. over a trillion dollars but less than a hundred trillion
d. over quadrillion dollars
e. none of the above

2. Cash markets are also known as
LU
a. speculative markets
b. spot markets
c. derivative markets
d. dollar markets
e. none of the above

3. A call option gives the holder
XE
a. the right to buy something
b. the right to sell something
c. the obligation to buy something
d. the obligation to sell something
e. none of the above

4. Which of the following instruments are contracts but are not securities
LI
a. stocks
b. options
c. swaps
d. a and b
e. b and c
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5. The positive relationship between risk and return is called
a. expected return
b. market efficiency
c. the law of one price
d. arbitrage
e. none of the above
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6. A transaction in which an investor holds a position in the spot market and sells a futures contract or writes a
call is
a. a gamble
b. a speculative position
c. a hedge
d. a risk-free transaction
e. none of the above
Y
7. Which of the following are advantages of derivatives?
a. lower transaction costs than securities and commodities
b. reveal information about expected prices and volatility
c. help control risk
d. make spot prices stay closer to their true values




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e. all of the above

8. A forward contract has which of the following characteristics?
a. has a buyer and a seller
b. trades on an organized exchange
c. has a daily settlement
d. gives the right but not the obligation to buy
e. all of the above

9. Options on futures are also known as
a. spot options
LU
b. commodity options
c. exchange options
d. security options
e. none of the above

10. A market in which the price equals the true economic value
a. is risk-free
XE
b. has high expected returns
c. is organized
d. is efficient
e. all of the above

11. Which of the following trade on organized exchanges?
a. caps
b. forwards
LI
c. options
d. swaps
e. none of the above
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12. Which of the following markets is/are said to provide price discovery?
a. futures
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
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a. speculating
b. short selling
c. risk neutral
d. traders
e. none of the above

14. Which of the following statements is not true about the law of one price
a. investors prefer more wealth to less
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b. investments that offer the same return in all states must pay the risk-free rate
c. if two investment opportunities offer equivalent outcomes, they must have the same price
d. investors are risk neutral
e. none of the above

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




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