Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Series 7 > Chapter 15 > Flashcards

Chapter 15 Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 7 Top-off Exam flashcards
1
Q

A _______-based index measures the market as a whole.

A

broad-based

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

A _______-based index measures the movement of a particular sector or industry.

A

narrow-based

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are two uses of index options?

A

To speculate on market movement or to hedge a portfolio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Is there any difference between the exercise of an index option and an equity option?

A

Yes, index options are cash-settled while equity options are settled by delivery of a specific security.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Equity options are based on a 100 share multiplier, while index options are based on a $______ multiplier.

A

$100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Upon exercise, what must index option sellers deliver to the buyers?

A

The in-the-money amount of the contract (based on the close) multiplied by $100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

An investor buys an OEX May 475 call at 10. What is his strategy?

A

Bullish

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

An investor buys an OEX May 475 call at 10. What is his breakeven point?

A

485

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

An investor buys an OEX May 475 call at 10. What is his maximum gain?

A

unlimited

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

An investor buys an OEX May 475 call at 10. What is his maximum loss?

A

The premium of $1,000 (the value of 10 x $100)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

World currencies trade in the _____________________.

A

Interbank Market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the hours of operation for the Interbank Market?

A

24 hours a day

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

True or False: The Interbank Market is a fully regulated and centralized market.

A

False. The Interbank Market is unregulated and decentralized.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the settlement for spot trades?

A

two business days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

For most world currency quotes, the decimal must be moved how many places to the left to convert to U.S. dollars?

A

two places to the left; except for Japanese Yen which moves 4

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

To convert the terms of a Japanese yen contract to U.S. dollars, the decimal is moved ______ places to the left.

A

4

17
Q

How is the premium for a world currency option calculated?

A

Contract size x the premium (with decimal moved appropriately)

18
Q

True or False: If an investor expects the U.S. dollar to strengthen, she could profit by buying U.S. dollar calls.

A

False. There are no U.S. dollar calls or puts issued; therefore, all answers must be based on a world currency.

19
Q

True or False: The buyer of a British pound call will profit if the British pound rises with a falling U.S. dollar.

A

True

20
Q

There is an inverse relationship between the movement of a world currency and the _____________.

A

U.S. Dollar

21
Q

Interest rate options are ______-based.

A

price-based

22
Q

Yield-based options are ______-based.

A

yield-based

23
Q

An investor, believing interest rates will rise, could profit by taking what interest-rate option position?

A

Buy interest-rate puts or write interest-rate calls

24
Q

An investor, believing interest rates will rise, could profit by taking what yield-based option position?

A

buy yield-based calls or write yield-based puts

25
Q

What is the primary use of VIX options?

A

To give individual investors the ability to trade market volatility

26
Q

What could an investor do if she expects the market to decline and volatility to increase?

A

Buy VIX calls

27
Q

What could an investor do if she expects the market to rise and volatility to decrease?

A

Buy VIX puts

28
Q

VIX options use a __________ style exercise and settle in ______.

A

European style exercise

settle in cash

29
Q

Volatility tends to increase during a ___________ market.

A

declining

30
Q

What is the VIX?

A

The CBOE Volatility Index Options, which is a leading barometer of investor sentiment and market volatility

31
Q

What is the underlying instrument used to calculate the VIX?

A

Real-time S&P 500 option bid/ask quotes weighted to a constant 30-day measure of expected volatility

32
Q

What should an investor do on the VIX if she anticipates an increase in volatility?

A

Buy VIX Calls. If volatility increases, the underlying VIX will rise and the calls will increase in value.

33
Q

When does volatility tend to increase?

A

When the market (S&P 500) drops abruptly

34
Q

Identify the acronym: VIX

A

CBOE’s Volatility Index

35
Q

The underlying asset of an interest rate option is a _________ instrument.

A

treasury

Series 7 (25 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions