Derivatives Final UPDATED ACTUAL
Exam Questions and CORRECT Answers
Which of the following best describes normal contango?
a. the spot price is less than the futures price
b. the futures price is less than the spot price
c. the expected spot price is less than the futures price
d. the cost of carry is negative
e. none of the above - CORRECT ANSWER - c. the expected spot price is less than the
futures price
Which of the following can explain a contango?
a. the interest rate exceeds the dividend yield
b. the cost of carry is negative
c. futures prices exceed forward prices
d. the market is at less than full carry
e. none of the above - CORRECT ANSWER - a. the interest rate exceeds the dividend
yield
A deep in-the-money call option on futures is exercised early because
a. the intrinsic value is maximized
b. it behaves like a futures but ties up funds
c. the futures price is not likely to rise any further
d. all of the above
e. none of the above - CORRECT ANSWER - b. it behaves like a futures but ties up funds
Futures prices differ from spot prices by which one of the following factors?
a. the systematic risk
b. the cost of carry
,c. the spread
d. the risk premium
e. none of the above - CORRECT ANSWER - b. the cost of carry
A contango market is consistent with
a. a negative basis
b. futures prices exceeding spot prices
c. a positive cost of carry
d. all of the above
e. none of the above - CORRECT ANSWER - d. all of the above
. Why is the initial value of a futures contract zero?
a. the futures is immediately marked-to-market
b. you do not pay anything for it
c. the basis will converge to zero
d. the expected profit is zero
e. none of the above - CORRECT ANSWER - b. you do not pay anything for it
The spot price plus the cost of carry equals
a. the convenience yield
b. the expected future spot price
c. the risk premium
d. the futures price
e. none of the above - CORRECT ANSWER - D. the futures price
Interest rate parity is essentially the same as
a. the cross-rate relationship
b. the cost of carry relationship
, c. the Garman-Kohlhagen model
d. all of the above
e. none of the above - CORRECT ANSWER - b. the cost of carry relationship
A transaction that exploits differences in the theoretical and actual values of a foreign currency
forward or futures contract is called
a. covered interest arbitrage
b. triangular arbitrage
c. a conversion
d. interest-rate parity
e. none of the above - CORRECT ANSWER - a. covered interest arbitrage
The cost of carry consists of all the following except
a. the risk-free rate
b. the cost of storage
c. insurance on the asset
d. the risk premium
e. none of the above - CORRECT ANSWER - d. the risk premium
The value of a long position in a forward contract at expiration is
a. the spot price plus the original forward price
b. the spot price minus the original forward price
c. the original forward price discounted to expiration
d. the spot price minus the original forward price discounted to expiration
e. none of the above - CORRECT ANSWER - a. the spot price minus the original forward
price
Which one of the following options is not associated with the Treasury bond futures contract?
Exam Questions and CORRECT Answers
Which of the following best describes normal contango?
a. the spot price is less than the futures price
b. the futures price is less than the spot price
c. the expected spot price is less than the futures price
d. the cost of carry is negative
e. none of the above - CORRECT ANSWER - c. the expected spot price is less than the
futures price
Which of the following can explain a contango?
a. the interest rate exceeds the dividend yield
b. the cost of carry is negative
c. futures prices exceed forward prices
d. the market is at less than full carry
e. none of the above - CORRECT ANSWER - a. the interest rate exceeds the dividend
yield
A deep in-the-money call option on futures is exercised early because
a. the intrinsic value is maximized
b. it behaves like a futures but ties up funds
c. the futures price is not likely to rise any further
d. all of the above
e. none of the above - CORRECT ANSWER - b. it behaves like a futures but ties up funds
Futures prices differ from spot prices by which one of the following factors?
a. the systematic risk
b. the cost of carry
,c. the spread
d. the risk premium
e. none of the above - CORRECT ANSWER - b. the cost of carry
A contango market is consistent with
a. a negative basis
b. futures prices exceeding spot prices
c. a positive cost of carry
d. all of the above
e. none of the above - CORRECT ANSWER - d. all of the above
. Why is the initial value of a futures contract zero?
a. the futures is immediately marked-to-market
b. you do not pay anything for it
c. the basis will converge to zero
d. the expected profit is zero
e. none of the above - CORRECT ANSWER - b. you do not pay anything for it
The spot price plus the cost of carry equals
a. the convenience yield
b. the expected future spot price
c. the risk premium
d. the futures price
e. none of the above - CORRECT ANSWER - D. the futures price
Interest rate parity is essentially the same as
a. the cross-rate relationship
b. the cost of carry relationship
, c. the Garman-Kohlhagen model
d. all of the above
e. none of the above - CORRECT ANSWER - b. the cost of carry relationship
A transaction that exploits differences in the theoretical and actual values of a foreign currency
forward or futures contract is called
a. covered interest arbitrage
b. triangular arbitrage
c. a conversion
d. interest-rate parity
e. none of the above - CORRECT ANSWER - a. covered interest arbitrage
The cost of carry consists of all the following except
a. the risk-free rate
b. the cost of storage
c. insurance on the asset
d. the risk premium
e. none of the above - CORRECT ANSWER - d. the risk premium
The value of a long position in a forward contract at expiration is
a. the spot price plus the original forward price
b. the spot price minus the original forward price
c. the original forward price discounted to expiration
d. the spot price minus the original forward price discounted to expiration
e. none of the above - CORRECT ANSWER - a. the spot price minus the original forward
price
Which one of the following options is not associated with the Treasury bond futures contract?
