Incorrect Answers: CISI

Question 1

When creating a hedge using futures, how can a trader avoid basis risk?

Answer 1

By holding the future until maturity.

Question 2

In a Bull Put Spread, where the strikes are 550 and 600 with a premium credit of 22, what is the maximum profit?

Answer 2

22

Question 3

The exchange price feed for a particular future includes the identifier Q. What does this indicate?

Answer 3

The delivery month.

Question 4

What is the name used for a product that can be used to portect the cost of floating rate borrowing over a series of settlement periods?

Answer 4

A cap.

Question 5

What role does Gamma play when Delta Hedging a Portfolio?

Answer 5

It represents the adjustment, that is required to hedge.

Question 6

How would an investor create a synthetic floating rate note using an asset swap?

Answer 6

By buying an underlying fixed-rate investment, while paying fixed but receiving floating in the swap.

Question 7

A nationally-licesnsed deriavtives exchange is best described as what body?

Answer 7

A self-regulatory organisation.

Question 8

In the US, who regulates all On-exchange derivatives not covered by the SEC?

Answer 8

CFTC

Question 9

Who regulates currency options on the CME?

Answer 9

CFTC

Question 10

What is the role of the national futures association?

Answer 10

To provide regulatory programmes.

Question 11

For What Reason have Commodity Swaps Grown in Popularity in Recent Years?

Ch.1

Answer 11

Increased demand for hedging due to market volatility.

Question 12

What will the holder of the fixed leg of a dividend swap pay the receiver?

Ch.1

Answer 12

A pre-designated fixed payment at each interval.

Question 13

How are payments structured for an Interest rate swap on each payment date?

Ch.1

Answer 13

A net payment is made, from the difference between a floating rate and a fixed rate.

Question 14

Why might a company use a roller coaster swap?

Ch.1

Answer 14

To match their seasonal borrowing requirements.

Question 15

What is the key factor that allows futures to be such highly geared investments?

Ch.1

Answer 15

The inital and maintenance margins that the exchange requires.

Question 16

Which metal is likley to be affected, by a decrease in the demand for catalytic converters?

Ch.2

Answer 16

Platinum.

Question 17

Where the spot bid price for USD/JPY is 112.55 and the 3 month outright rate is 112.05, this indicates that?

Ch.2

Answer 17

There is a discount for forward delivery.

Question 18

What does the holder of a CD receive on redmeption?

Ch.2

Answer 18

Full face value plus the specified interest rate.

Question 19

What is one of the main reasons a company would use a NDF (Non deliverable forward)?

Ch.2

Answer 19

Hedge an FX exposure in a currency that is not fully convertible.

Question 20

What is a common characteristic of a CD?

What maturities?

Ch.2

Answer 20

They are usually issued with 3 or 6 month maturities?

Question 21

How does the Gordon Growth model calculate the value of a share?

Ch.2

Answer 21

By discounting future dividends back to a present value.

Question 22

Are Norweigan OBX Index futures traded in the LSE derivatives exchange?

Ch.3

Answer 22

Yes

Question 23

An index is standing at 766, using a long straddle, where both options have an exercise of 740.

What is the intrinsic value?

Ch.3

Answer 23

Long call - 26

Long Put - 0

IV = 26

Question 24

When calculating the Fair Value of a forward contract on a FTSE 100 share, what would a trader need to consider?

Ch.3

Answer 24

The difference between the current interest rate the shares dividend yield.

Question 25

When a Equity swap takes place on a Bullet swap basis, this indicates that?

Ch.5

Answer 25

Counterparty risk is reduced.

Question 26

Why is the ISDA master agreement important should one counterparty default?

Ch.5

Answer 26

It allows all the deals to be netted rather than considered seperatley.

Question 27

How does the time til maturity (X) and the volatility of the underlying (Y) affect the price of the option?

Ch.5

Answer 27

The premium rises if X and Y increase

Question 28

Why is it important for banks to perform regular M2M valuations on it OTC operations?

Ch.5

Answer 28

To ensure that counter party risk is adequatley covered.

Question 29

A CDO allows the originator to?

Pass on what?

Ch.5

Answer 29

Credit risk to other investors

Question 30

What is the reason for collective of intra-day variation margin?

Ch.6

Answer 30

Where there is a large jump in an instruments volatility.

Question 31

How is currency risk minimised for members of a clearing house?

Ch.6

Question 32

Where margin demands are made by both the clearing house (X) and the clearing memeber (Y), in respect of the FCA rules, the payment must be?

How large?

Ch.6

Answer 32

Y must be at least as large as X

Question 33

Are bank deposits from an approved bank an accepted form of collateral?

Answer 33

Yes.