Incorrect Answers: CISI Flashcards
When creating a hedge using futures, how can a trader avoid basis risk?
By holding the future until maturity.
In a Bull Put Spread, where the strikes are 550 and 600 with a premium credit of 22, what is the maximum profit?
22
The exchange price feed for a particular future includes the identifier Q. What does this indicate?
The delivery month.
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?
A cap.
What role does Gamma play when Delta Hedging a Portfolio?
It represents the adjustment, that is required to hedge.
How would an investor create a synthetic floating rate note using an asset swap?
By buying an underlying fixed-rate investment, while paying fixed but receiving floating in the swap.
A nationally-licesnsed deriavtives exchange is best described as what body?
A self-regulatory organisation.
In the US, who regulates all On-exchange derivatives not covered by the SEC?
CFTC
Who regulates currency options on the CME?
CFTC
What is the role of the national futures association?
To provide regulatory programmes.
For What Reason have Commodity Swaps Grown in Popularity in Recent Years?
Ch.1
Increased demand for hedging due to market volatility.
What will the holder of the fixed leg of a dividend swap pay the receiver?
Ch.1
A pre-designated fixed payment at each interval.
How are payments structured for an Interest rate swap on each payment date?
Ch.1
A net payment is made, from the difference between a floating rate and a fixed rate.
Why might a company use a roller coaster swap?
Ch.1
To match their seasonal borrowing requirements.
What is the key factor that allows futures to be such highly geared investments?
Ch.1
The inital and maintenance margins that the exchange requires.
Which metal is likley to be affected, by a decrease in the demand for catalytic converters?
Ch.2
Platinum.
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
There is a discount for forward delivery.
What does the holder of a CD receive on redmeption?
Ch.2
Full face value plus the specified interest rate.
What is one of the main reasons a company would use a NDF (Non deliverable forward)?
Ch.2
Hedge an FX exposure in a currency that is not fully convertible.
What is a common characteristic of a CD?
What maturities?
Ch.2
They are usually issued with 3 or 6 month maturities?
How does the Gordon Growth model calculate the value of a share?
Ch.2
By discounting future dividends back to a present value.
Are Norweigan OBX Index futures traded in the LSE derivatives exchange?
Ch.3
Yes
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
Long call - 26
Long Put - 0
IV = 26
When calculating the Fair Value of a forward contract on a FTSE 100 share, what would a trader need to consider?
Ch.3
The difference between the current interest rate the shares dividend yield.
When a Equity swap takes place on a Bullet swap basis, this indicates that?
Ch.5
Counterparty risk is reduced.
Why is the ISDA master agreement important should one counterparty default?
Ch.5
It allows all the deals to be netted rather than considered seperatley.
How does the time til maturity (X) and the volatility of the underlying (Y) affect the price of the option?
Ch.5
The premium rises if X and Y increase
Why is it important for banks to perform regular M2M valuations on it OTC operations?
Ch.5
To ensure that counter party risk is adequatley covered.
A CDO allows the originator to?
Pass on what?
Ch.5
Credit risk to other investors
What is the reason for collective of intra-day variation margin?
Ch.6
Where there is a large jump in an instruments volatility.
How is currency risk minimised for members of a clearing house?
Ch.6
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
Y must be at least as large as X
Are bank deposits from an approved bank an accepted form of collateral?
Yes.
