DERIVATIVES & ALTERNATIVE INV. Flashcards

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1
Q

notably futures and some options; these are traded in centralized locations and are standardized, regulated and free of default created by dealers or financial institutions.

A

Exchange-Traded Derivatives

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2
Q

Forwards and swaps are ______ contracts, also described as _______, created by

A

custom; over-the-counter derivatives

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3
Q

Over-the-counter derivatives have limited trading in _________ markets and _________ must be considered.

A

secondary; default (counterparty) risk

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4
Q

Interest rate swaps contracts are equivalent to a series of _______ on interest rates.

A

Forward Contracts

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5
Q

Futures contracts are much like _________ contracts, but are ____________ (3).

A

forward contracts; exchange-traded, liquid, require daily settlement of G/L.

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6
Q

valuation of derivatives is based on a no-arbitrage condition with _____, because the risk of a derivative is based on the risk of the __________.

A

risk neutral pricing; underlying asset

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7
Q

what are the 3 replications amond a derivative, its underlying asset, and a risk-free asset?

A

risky asset + derivative = risk-free asset
risky asset - risk-free asset = -derivative position
derivative position - risk-free asset = -risky asset

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8
Q

___________ include merger arbitrage, distressed/restructuring, and special situations strategies that involve long or short posistions in CE, Pref. E, or Debt of a specific corporation.

A

Event-Driven Strategies

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9
Q

The most prevalent type of private equity fund is _______.

A

Leveraged Buyout Funds

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10
Q

Equity hedge funds with a _____ bias, attempt to profit from short positions in equities they believe to be ______valued.

A

short; over[valued]

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11
Q

Funds tht invest in equity of companies, primarily using debt financing are best characterized as:

A

private equity funds [also this is primarily LBO}

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12
Q

A _________ call combines a call option and a bond that pays the exercise price of the call at option expiration.

A

Fiduciary [call option]

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13
Q

____________ stage capital prepares a company for an IPO.

A

Mezzanine

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14
Q

A _______ ________ contract can be settled at expiration only by actual delivery of the asset in exchange for the contract value.

A

Deliverable Forward [contract}

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15
Q

and option’s value is = to the amount of the option is ________.
and the time value is the ________ minus the _________.

A

in-the-money; market value; intrinsic

NOTE: FINAL VALUE IS THE MARKET MINUS THE SPECIFIED PRICE

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16
Q

______ yield is the yield return due to a difference between the spot price and futures price, or a difference between two futures prices with different expition dates, and results from futures prices convergin to the spot price as futures contracts approach their expiration dates.

A

Roll [yield]

NOTE: may be (+) or (-).

17
Q

Reading “the maximum of zero and the stock price minus the exercise price” is written in math as:

A

Max (0, S - X)

18
Q

Dividends or interest paid by the asset underlying a call option:

A

decrease the value of the call options. [value of holding the asset]

19
Q
A