衍生.docx

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1、Derivatives1.A derivative is best described as a financial instrument that derives its performance by: passing through the returns of the underlying. replicating the performance of the underlying. transforming the performance of the underlying.A. B. C.C is correct. A derivative is a financial instru

2、ment that transforms the performance of the underlying. The transformation of performance function of derivatives is what distinguishes it from mutual funds and exchange traded funds that pass through the returns of the underlying. A is incorrect because derivatives, in contrast to mutual funds and

3、exchange traded funds, do not simply pass through the returns of the underlying at payout. B is incorrect because a derivative transforms rather than replicates the performance of the underlying.2.Compared with exchange-traded derivatives, over-the-counter derivatives would most likely be described

4、as: standardized. less transparent. more transparent.A. B. C.B is correct. Over-the counter-derivatives markets are customized and mostly unregulated. As a result, over-the-counter markets are less transparent in comparison with the high degree of transparency and standardization associated with exc

5、hange-traded derivative markets. A is incorrect because exchange-traded derivatives are standardized, whereas over- the counter derivatives are customized. C is incorrect because exchange-traded derivatives are characterized by a high degree of transparency because all transactions are disclosed to

6、exchanges and regulatory agencies, whereas over-the-counter derivatives are relatively opaque.3. A. B. C.Exchange-traded derivatives are: largely unregulated. traded through an informal network. guaranteed by a clearinghouse against default.C is correct. Exchanged-traded derivatives are guaranteed b

7、y a clearinghouse against default.A is incorrect because traded derivatives are characterized by a relatively high degree of regulation. B is incorrect because the terms of exchange-traded derivatives terms are specified by the exchange.4. A. B. C.Which of the following derivatives is classified as

8、a contingent claim? Futures contracts Interest rate swaps Credit default swapsC is correct. A credit default swap (CDS) is a derivative in which the credit protection seller provides protection to the credit protection buyer against the credit risk of a separate party. CDS are classified as a contin

9、gent claim. A is incorrect because futures contracts are classified as forward commitments. B is incorrect because interest rate swaps are classified as forward commitments.5. A. B. C.In contrast to contingent claims, forward commitments provide the: right to buy or sell the underlying asset in the

10、future. obligation to buy or sell the underlying asset in the future. promise to provide credit protection in the event of default.B is correct. Forward commitments represent an obligation to buy or sell the underlying asset at an agreed upon price at a future date. A is incorrect because the right

11、to buy or sell the underlying asset is a characteristic of contingent claims, not forward commitments. C is incorrect because a credit default swap provides a promise to provide credit protection to the credit protection buyer in the event of a credit event such as a default or credit downgrade and

12、is classified as a contingent claim.6.Which of the following derivatives provide payoffs that are non-linearly related to the payoffs of the underlying? Options Forwards Interest-rate swapsA. B. C.A is correct. Options are classified as a contingent claim which provides payoffs that are non- linearl

13、y related to the performance of the underlying. B is incorrect because forwards are classified as a forward commitment, which provides payoffs that are linearly related to the performance of the underlying. C is incorrect because interest-rate swaps are classified as a forward commitment, which prov

14、ides payoffs that are linearly related to the performance of the underlying.7. A. B. C.An interest rate swap is a derivative contract in which: two parties agree to exchange a series of cash flows. the credit seller provides protection to the credit buyer. the buyer has the right to purchase the und

15、erlying from the seller.A is correct. An interest rate swap is defined as a derivative in which two parties agree to exchange a series of cash flows: One set of cash flows is variable, and the other set can be variable or fixed. B is incorrect because a credit derivative is a derivative contract in

16、which the credit protection seller provides protection to the credit protection buyer. C is incorrect because a call option gives the buyer the right to purchase the underlying from the seller.8. A. B. C.Forward commitments subject to default are: forwards and futures. futures and interest rate swap

17、s. interest rate swaps and forwards.C is correct. Interest rate swaps and forwards are over-the-counter contracts that are privately negotiated and are both subject to default. Futures contracts are traded on an exchange, which provides a credit guarantee and protection against default. A is incorre

18、ct because futures are exchange-traded contracts which provide daily settlement of gains and losses and a credit guarantee by the exchange through its clearinghouse. B is incorrect because futures are exchange-traded contracts which provide daily settlement of gains and losses and a credit guarantee

19、 by the exchange through its clearinghouse.9.Which of the following derivatives is least likely to have a value of zero at initiation of the contract? Futures Options ForwardsA. B. C.B is correct. The buyer of the option pays the option premium to the seller of the option at the initiation of the co

20、ntract. The option premium represents the value of the option, whereas futures and forwards have a value of zero at the initiation of the contract. A is incorrect because no money changes hands between parties at the initiation of the futures contract, thus the value of the futures contract is zero

21、at initiation. C is incorrect because no money changes hands between parties at the initiation of the forward contract, thus the value of the forward contract is zero at initiation.10. A. B. C.A credit derivative is a derivative contract in which the: clearinghouse provides a credit guarantee to bot

22、h the buyer and the seller. seller provides protection to the buyer against the credit risk of a third party. the buyer and seller provide a performance bond at initiation of the contract.B is correct. A credit derivative is a derivative contract in which the credit protection seller provides protec

23、tion to the credit protection buyer against the credit risk of a third party. A is incorrect because the clearinghouse provides a credit guarantee to both the buyer and the seller of a futures contract, whereas a credit derivative is between two parties, in which the credit protection seller provide

24、s a credit guarantee to the credit protection buyer. C is incorrect because futures contracts require that both the buyer and the seller of the futures contract provide a cash deposit for a portion of the futures transaction into a margin account, often referred to as a performance bond or good fait

25、h deposit.11. Compared with the underlying spot market, derivative markets are more likely to have: greater liquidity. higher transaction costs. higher capital requirements.A. B. C.A is correct. Derivative markets typically have greater liquidity than the underlying spot market as a result of the lo

26、wer capital required to trade derivatives compared with the underlying. Derivatives also have lower transaction costs and lower capital requirements than the underlying. B is incorrect because transaction costs for derivatives are lower than the underlying spot market. C is incorrect because derivat

27、ives markets have lower capital requirements than the underlying spot market.12. Which of the following characteristics is least likely to be a benefit associated with using derivatives? More effective management of risk Payoffs similar to those associated with the underlying Greater opportunities t

28、o go short compared with the spot marketA. B. C.B is correct. One of the benefits of derivative markets is that derivatives create trading strategies not otherwise possible in the underlying spot market, thus providing opportunities for more effective risk management than simply replicating the payo

29、ff of the underlying. A is incorrect because effective risk management is one of the primary purposes associated with derivative markets. C is incorrect because one of the operationaladvantages associated with derivatives is that it is easier to go short compared to the underlying spot market.13. Wh

30、ich of the following is most likely to be a destabilizing consequence of speculation using derivatives? Increased defaults by speculators and creditors Market price swings resulting from arbitrage activities The creation of trading strategies that result in asymmetric performanceA. B. C.A is correct

31、. The benefits of derivatives, such as low transaction costs, low capital requirements, use of leverage, and the ease in which participants can go short, also can result in excessive speculative trading. These activities can lead to defaults on the part of speculators and creditors. B is incorrect b

32、ecause arbitrage activities tend to bring about a convergence of prices to intrinsic value. C is incorrect because asymmetric performance is not itself destabilizing.14. A. B. C.The law of one price is best described as: the true fundamental value of an asset. earning a risk-free profit without comm

33、itting any capital. two assets that will produce the same cash flows in the future must sell for equivalent prices.C is correct. The law of one price occurs when market participants engage in arbitrage activities so that identical assets sell for the same price in different markets. A is incorrect b

34、ecause the law of one price refers to identical assets. B is incorrect because it refer to arbitrage not the law of one price.15. A. B. C.Arbitrage opportunities exist when: two identical assets or derivatives sell for different prices. combinations of the underlying asset and a derivative earn the

35、risk-free rate. arbitrageurs simultaneously buy takeover targets and sell takeover acquirers.A is correct. Arbitrage opportunities exist when the same asset or two equivalent combinations of assets that produce the same results sell for different prices. When this situation occurs, market participan

36、ts would buy the asset in the cheaper market and simultaneously sell it in the more expensive market, thus earning a riskless arbitrage profit without committing any capital. B is incorrect because it is not the definition of an arbitrage opportunity. C is incorrect because it is not the definition

37、of an arbitrage opportunity.16. A. B. C.An arbitrage opportunity is least likely to be exploited when: one position is illiquid. the price differential between assets is large. the investor can execute a transaction in large volumes.A is correct. An illiquid position is a limit to arbitrage because

38、it may be difficult to realize gains of an illiquid offsetting position. A significant opportunity arises from a sufficiently large price differential or a small price differential that can be employed on a very large scale.17. A. B. C.An arbitrageur will most likely execute a trade when: transactio

39、n costs are low. costs of short-selling are high. prices are consistent with the law of one price.A is correct. Some arbitrage opportunities represent such small price discrepancies that they are only worth exploiting if the transaction costs are low. An arbitrage opportunity may require short-selli

40、ng assets at costs that eliminate any profit potential. If the law of one price holds, there is no arbitrage opportunity.18. A. B. C.An arbitrage transaction generates a net inflow of funds: throughout the holding period. at the end of the holding period. at the start of the holding period.C is corr

41、ect. Arbitrage is a type of transaction undertaken when two assets or portfolios produce identical results but sell for different prices. A trader buys the asset or portfolio with the lower price and sells the asset or portfolio with the higher price, generating a net inflow of funds at the start of

42、 the holding period. Because the two assets or portfolios produce identical results, a long position in one and short position in the other means that at the end of the holding period, the payoffs offset. Therefore, there is no money gained or lost at the end of the holding period, so there is no ri

43、sk.19. A. B. C.The price of a forward contract: is the amount paid at initiation. is the amount paid at expiration. fluctuates over the term of the contract.B is correct. The forward price is agreed upon at the start of the contract and is the fixed price at which the underlying will be purchased (o

44、r sold) at expiration. Payment is made atexpiration. The value of the forward contract may change over time, but the forward price does not change.20. Assume an asset pays no dividends or interest, and also assume that the asset does not yield any non-financial benefits or incur any carrying cost. A

45、t initiation, the price of a forward contract on that asset is: lower than the value of the contract. 139 equal to the value of the contract. greater than the value of the contract.A. B. C.C is correct. The price of a forward contract is a contractually fixed price, established at initiation, at whi

46、ch the underlying will be purchased (or sold) at expiration. The value of a forward contract at initiation is zero; therefore, the forward price is greater than the value of the forward contract at initiation.21. A. B. C.With respect to a forward contract, as market conditions change: only the price

47、 fluctuates. only the value fluctuates. both the price and the value fluctuate.B is correct. The value of the forward contract, unlike its price, will adjust as market conditions change. The forward price is fixed at initiation.22. A. B. C.The value of a forward contract at expiration is: positive t

48、o the long party if the spot price is higher than the forward price. negative to the short party if the forward price is higher than the spot price. positive to the short party if the spot price is higher than the forward price.A is correct. When a forward contract expires, if the spot price is higher than the forward price, the long party profits from paying the lower forward