Extra MCQ'S

Question 1

To determine the fixed rate on a
swap, you would

1. use the same fixed rate as that of a zero coupon bond of
   equivalent maturity
2. use the continuously compounded rate for the shortest
   maturity bond
3. price it as the issuance of a fixed rate bond and
   purchase of a floating rate bond or vice versa
4. none of the above

Answer 1

price it as the issuance of a fixed rate bond and

purchase of a floating rate bond or vice versa

Question 2

Which of the following is a use of a
currency swap?

1. To exchange an investment in one currency for an
   investment in another currency
2. To exchange borrowing in one currency for borrowings
   in another currency
3. To take advantage situations where the tax rates in two
   countries are different
4. All of the above

Answer 2

All of the above

Question 3

Duration matching immunizes a
portfolio against

1. Any parallel shift in the yield curve
2. All shifts in the yield curve
3. Changes in the steepness of the yield curve
4. Small parallel shifts in the yield curve

Answer 3

Small parallel shifts in the yield curve

Question 4

A trader uses 3-month Eurodollar futures to
lock in a rate on $5 million for six months.
How many contracts are required?

1. 5
2. 10
3. 15
4. 20

Answer 4

10

Question 5

Which
of the following best describes the advantage of hedging?

1. It leads to a better exchange rate being paid OPEN
2. It leads to a more predictable exchange rate being
   paid
3. It caps the exchange rate that will be paid
4. It provides a floor for the exchange rate that will
   be paid

Answer 5

It leads to a more predictable exchange rate being

paid

Question 6

Margin accounts have the effect of

1. Reducing the risk of one party regretting the deal and
   backing out
2. Ensuring funds are available to pay traders when they
   make a profit
3. Reducing systemic risk due to collapse of futures
   markets
4. All of the above

Answer 6

All of the above

Question 7

Which of the following are advantages
of derivatives?

1. lower transaction costs than securities and commodities
2. reveal information about expected prices and volatility
3. help control risk
4. make spot prices stay closer to their true values
5. all of the above

Answer 7

all of the above