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1、Financial Markets and Institutions, 6e (Mishkin/Eakins)Chapter 25 Hedging with Financial Derivatives25.1 Multiple Choice1) Financial derivatives includeA) stocks.B) bonds.C) futures.D) none of the above.Answer: CQuestion Status: Previous Edition2) Financial derivatives includeA) stocks.B) bonds.C) f
2、orward contracts.D) both A and B.Answer: CQuestion Status: Previous Edition3) Which of the following is not a financial derivative?A) StockB) FuturesC) OptionsD) Forward contractsAnswer: AQuestion Status: Previous Edition4) A contract that requires the investor to buy securities on a future date is
3、called a A) short contract.B) long contract.C) hedge.D) cross.Answer: BQuestion Status: Previous Edition5) A contract that requires the investor to sell securities on a future date is called a A) short contract.B) long contract.C) hedge.D) micro hedge.Answer: AQuestion Status: Previous Edition53) A
4、call option gives the owner the to the underlying security.A) right; sellB) obligation; sellC) right; buyD) obligation; buyAnswer: CQuestion Status: Previous Edition54) A put option gives the owner the to the underlying security.A) right; sellB) obligation; sellC) right; buyD) obligation; buyAnswer:
5、 AQuestion Status: Previous Edition55) A call option gives the seller the to the underlying security.A) right; sellB) obligation; sellC) right; buyD) obligation; buyAnswer: BQuestion Status: Previous Edition56) A put option gives the seller the to the underlying security.A) right; sellB) obligation;
6、 sellC) right; buyD) obligation; buyAnswer: DQuestion Status: Previous Edition57) If you buy an option to buy Treasury futures at 115, and at expiration the market price is 110,A) the call will be exercised.B) the put will be exercised.C) the call will not be exercised.D) the put will not be exercis
7、ed.Answer: CQuestion Status: Previous Edition58) If you buy an option to sell Treasury futures at 115, and at expiration the market price is 110,A) the call will be exercised.B) the put will be exercised.C) the call will not be exercised.D) the put will not be exercised.Answer: BQuestion Status: Pre
8、vious Edition59) If you buy an option to buy Treasury futures at 110, and at expiration the market price is 115, A) the call will be exercised.B) the put will be exercised.C) the call will not be exercised.D) the put will not be exercised.Answer: AQuestion Status: Previous Edition60) If you buy an o
9、ption to sell Treasury futures at 110, and at expiration the market price is 115, A) the call will be exercised.B) the put will be exercised.C) the call will not be exercised.D) the put will not be exercised.Answer: DQuestion Status: Previous Edition61) The main advantage of using options on futures
10、 contracts rather than the futures contracts themselves is that interest-rate risk isA) controlled while preserving the possibility of gains.B) controlled while removing the possibility of losses.C) not controlled but the possibility of gains is preserved.D) not controlled but the possibility of gai
11、ns is lost.Answer: AQuestion Status: Previous Edition62) The main reason to buy an option on a futures contract rather than the futures contract itself isA) to reduce transaction cost.B) to preserve the possibility for gains.C) to limit losses.D) to remove the possibility for gains.Answer: BQuestion
12、 Status: Previous Edition63) The main disadvantage of futures contracts as compared to options on futures contracts is that futuresA) remove the possibility of gains.B) increase the transactions cost.C) are not as effective a hedge.D) do not remove the possibility of losses.Answer: AQuestion Status:
13、 Previous Edition64) All other things held constant, premiums on put options will increase when theA) exercise price increases.B) volatility of the underlying asset falls.C) term to maturity increases.D) A and C are both true.Answer: DQuestion Status: Previous Edition65) All other things held consta
14、nt, premiums on call options will increase when theA) exercise price falls.B) volatility of the underlying asset falls.C) term to maturity decreases.D) futures price increases.Answer: AQuestion Status: Previous Edition66) All other things held constant, premiums on both put and call options will inc
15、rease when the A) exercise price increases.B) volatility of the underlying asset increases.C) term to maturity decreases.D) futures price increases.Answer: BQuestion Status: Previous Edition67) An increase in the volatility of the underlying asset, all other things held constant, will the option pre
16、mium.A) increaseB) decreaseC) not affectD) Not enough information is given.Answer: AQuestion Status: Previous Edition68) An increase in the exercise price, all other things held constant, will the premiumon call options.)/ 7 7 A B c DincreasedecreaseNot enough information is given.Answer: BQuestion
17、Status: Previous Edition69) If a bank manager wants to protect the bank against losses that would be incurred on its portfolio of Treasury securities should interest rates rise, he could options onfinancial futures.A) buy putB) buy callC) sell putD) sell callAnswer: AQuestion Status: Previous Editio
18、n70) A financial contract that obligates one party to exchange a set of payments it owns for another set of payments owned by another party is called aA) cross hedge.B) cross call option.C) cross put option.D) swap.Answer: DQuestion Status: Previous Edition71) A swap that involves the exchange of a
19、set of payments in one currency for a set of payments in another currency is a(n)A) interest-rate swap.B) currency swap.C) swaption.D) notional swap.Answer: BQuestion Status: Previous Edition72) A swap that involves the exchange of one set of interest payments for another set of interest payments is
20、 called a(n)A) interest-rate swap.B) currency swap.C) swaption.D) notional swap.Answer: AQuestion Status: Previous Edition73) If Second National Bank has more rate-sensitive assets than rate-sensitive liabilities, it can reduce interest-rate risk with a swap which requires Second National toA) pay a
21、 fixed rate while receiving a floating rate.B) receive a fixed rate while paying a floating rate.C) both receive and pay a fixed rate.D) both receive and pay a floating rate.Answer: BQuestion Status: Previous Edition74) If Second National Bank has more rate-sensitive liabilities than rate-sensitive
22、assets, it can reduce interest-rate risk with a swap which requires Second National toA) pay a fixed rate while receiving a floating rate.B) receive a fixed rate while paying a floating rate.C) both receive and pay a fixed rate.D) both receive and pay a floating rate.Answer: AQuestion Status: Previo
23、us Edition75) If a bank has a gap of -$10 million, it can reduce its interest-rate risk byA) paying a fixed rate on $10 million and receiving a floating rate on $10 million.B) paying a floating rate on $10 million and receiving a fixed rate on $10 million.C) selling $20 million fixed-rate assets.D)
24、buying $20 million fixed-rate assets.Answer: AQuestion Status: Previous Edition76) One advantage of using swaps to eliminate interest-rate risk is that swapsA) are less costly than futures.B) are less costly than rearranging balance sheets.C) are more liquid than futures.D) have better accounting tr
25、eatment than options.Answer: BQuestion Status: Previous Edition77) The disadvantage of swaps is thatA) they lack liquidity.B) it is difficult to arrange for a counterparty.C) they suffer from default risk.D) all of the above.Answer: DQuestion Status: Previous Edition78) As compared to a default on t
26、he notional principle, a default on a swapA) is more costly.B) is about as costly.C) is less costly.D) may cost more or less than default on the notional principle.Answer: CQuestion Status: Previous Edition79) Intermediaries are active in the swap markets becauseA) they increase liquidity.B) they re
27、duce default risk.C) they reduce search cost.D) all of the above are true.Answer: DQuestion Status: Previous Edition80) A valid concern about financial derivatives is thatA) they allow financial institutions to increase their leverage.B) they are too sophisticated because they are so complicated.C)
28、the notional amounts can greatly exceed a financial institutions capital.D) all of the above are valid concerns.E) none of the above is a valid concern.Answer: AQuestion Status: Previous Edition81) The biggest danger of financial derivatives occursA) when notional amounts exceed a banks capital.B) w
29、hen financial market prices and rates are highly volatile.C) in trading activities of financial institutions.D) in the large amount of credit exposure.Answer: CQuestion Status: Previous Edition25.2 True/False1) A forward contract is more flexible than a futures contract.Answer: TRUEQuestion Status:
30、Previous Edition2) Futures contracts are standardized.Answer: TRUEQuestion Status: Previous Edition3) A long contract obligates the holder to sell securities in the future.Answer: FALSEQuestion Status: Previous Edition4) A short contract obligates the holder to sell securities in the future.Answer:
31、TRUEQuestion Status: Previous Edition5) One problem with a futures contract is finding a counterparty.Answer: FALSEQuestion Status: Previous Edition6) Futures contracts are subject to default risk.Answer: FALSEQuestion Status: Previous Edition7) Futures trading is regulated by the Commodity Futures
32、Trading Commission.Answer: TRUEQuestion Status: Previous Edition8) Open interest allows investors to change the interest rate on futures contracts.Answer: FALSEQuestion Status: Previous Edition9) To reduce the interest-rate risk of holding a portfolio of bonds, Treasury bond futures contracts should
33、 be bought.Answer: FALSEQuestion Status: Previous Edition10) To reduce foreign exchange risk from selling goods to a foreign country, futures contracts should be sold.Answer: TRUEQuestion Status: Previous Edition11) An option that gives the holder the right to buy an asset in the future is a put.Ans
34、wer: FALSEQuestion Status: Previous Edition12) Option premiums increase as the term to maturity increases.Answer: TRUEQuestion Status: Previous Edition13) Option premiums fall as the volatility of the underlying asset falls.Answer: TRUEQuestion Status: Previous Edition14) Using options to control in
35、terest-rate risk reduces the chance of a loss but increases the chance of a gain.Answer: FALSEQuestion Status: Previous Edition15) One advantage of using options to hedge is that the accounting transaction will never require the firm to show large unrecognized losses.Answer: TRUEQuestion Status: Pre
36、vious Edition16) Interest-rate swaps involve the exchange of a set of payments in one currency for a set of payments in another.Answer: FALSEQuestion Status: Previous Edition17) Currency swaps involve the exchange of a set of payments on one currency for a set of payments in another.Answer: TRUEQues
37、tion Status: Previous Edition18) If Friendly Finance Company has more rate-sensitive assets than rate-sensitive liabilities, it may reduce risk with a swap.Answer: TRUEQuestion Status: Previous Edition19) Interest-rate swaps are more liquid than futures contracts.Answer: FALSEQuestion Status: Previo
38、us Edition20) Intermediaries add value to the swap market by reducing default risk.Answer: TRUEQuestion Status: Previous Edition25.3 Essay1) Distinguish between forward and futures contracts.Question Status: Previous Edition2) Why have the futures markets grown so rapidly in recent years?Question St
39、atus: Previous Edition3) Explain how a short hedge could be used to hedge a Treasury portfolio against interest-rate risk.Question Status: Previous Edition4) Explain how a long hedge could be used to protect a bank from the risk that interest rates could rise before a loan is funded.Question Status:
40、 Previous Edition5) How would a firm use exchange rate futures to lock in current exchange rates?Question Status: Previous Edition6) Explain how a swap could be used to reduce interest-rate risk for a bank with more rate-sensitive assets than rate-sensitive liabilities.Question Status: Previous Edit
41、ion7) Define and distinguish between call options and put options.Question Status: Previous Edition8) Explain how option contracts could be used to protect against losses in portfolio value that may occur as interest rates increase.Question Status: Previous Edition9) Explain the advantages of protec
42、ting against interest-rate risk using options rather than futures contracts.Question Status: Previous Edition10) Discuss the advantages of using swaps to protect against interest-rate risk rather than restructuring the balance sheet.Question Status: Previous Edition6) A long contract requires that t
43、he investorA) sell securities in the future.B) buy securities in the future.C) hedge in the future.D) close out his position in the future.Answer: BQuestion Status: Previous Edition7) A short contract requires that the investorA) sell securities in the future.B) buy securities in the future.C) hedge
44、 in the future.D) close out his position in the future.Answer: AQuestion Status: Previous Edition8) Which is not a problem of forward contracts?A) a lack of liquidityB) a lack of flexibilityC) the difficulty of finding a counterpartyD) default riskAnswer: BQuestion Status: Previous Edition9) By sell
45、ing short a futures contract of $100,000 at a price of 115, you are agreeing to deliver face value securities for.A) $100,000; $115,000B) $115,000; $110,000C) $100,000; $100,000D) $115,000; $115,000Answer: AQuestion Status: Previous Edition10) By selling short a futures contract of $100,000 at a pri
46、ce of 96, you are agreeing to deliver face value securities for.A) $100,000; $104,167B) $96,000; $100,000C) $100,000; $96,000D) $100,000; $100,000Answer: CQuestion Status: Previous Edition11) By buying a long $100,000 futures contract for 115, you agree to pay forface value securities.A) $100,000; $
47、115,000B) $115,000; $100,000C) $86,956; $100,000D) $86,956; $115,000Answer: BQuestion Status: Previous Edition12) If you sell a short contract on financial futures, you hope interest rates willA) rise.B) fall.C) not change.D) fluctuate.Answer: AQuestion Status: Previous Edition13) If you buy a long contract on financial futures, you hope interest rates willA) rise.B) fall.C) not change.D) fluctuate.Answer: BQuestion Status: Previous Editio