Mock 2 Flashcards
The number of options required to hedge is calculate using:
Value of portfolio / (put strike x Value per point of option)
All of the following are used to determine the priority by which orders on Euronext Derivatives’ Universal Trading Platform are executed except:
Underlying
Which of the following are true of the London FX market?
Spot rates are quoted as bid-offer spreads
Spot contract settlement is T+2
Trading of FX derivatives in London is OTC
Which of the following is true concerning US T-bonds?
They are all registered
They are not issued with a zero coupon
Which of the following statements regarding warrants is false?
They are only issued to existing shareholders
Which of the following is not true with regard to futures?
A short futures position is closed out by selling a future
Which type of margin increases as a contract approaches the end of the delivery month?
Spot month
Which of the below is subject to variation margin on a daily basis on future style options?
Both holder and writer
Which of the following is an unacceptable form of collateral for initial margin of a FTSE 100 contract for differences?
FTSE 100 equities
Which of the following statements about warrants is FALSE?
Pay regular dividends
Warrant holders have no dividend entitlements until exercised into shares.
Which of the following is true of equity traded options?
A call option’s exercise price can be above the share price
A trader is long a June call option with a strike of 4,000 and short a September call option with a strike of 4,000. This is best described as a:
Horizontal spread
Which of the following is an advantage of pooled funds?
Geographical diversification
If the long end of the euro curve is expected to flatten what would a trader do?
Sell euribor futures and buy bund futures
Which of the following best describes gearing in the context of futures?
The ability to make large profits or losses from relatively small initial margin requirements
An investor is long five September short sterling and ten December short sterling and wants reduced margin payments. Will this be allowed?
No reduction will be allowed
Which of the following is most likely to be assigned?
An in-the-money put close to expiry
What adjustment is made to the calculated SPAN scanning risk to adjust for offsetting futures positions?
Inter-commodity spread margin
How does a clearing house determine the level of a member’s contribution to the member default fund?
According to the volume of trades and initial margin requirements of the member
The cheapest-to-deliver is the gilt
with the HIGHEST implied repo rate.
The maximum movement in price between the end of one settlement day and the next would be known as:
The intraday range
What is shown on electronic/screen based trading systems?
Best bid/offer
On ICE Futures Europe what is meant by allocation?
It is the facility by which a trade is given up to a designated global clearer
A put option where the exercise price is lower than the underlying’s current value is said to be:
Out-of-the-money
Which of the following is TRUE regarding where a confirmation sits in the architecture of the ISDA documentation?
The specific terms of the confirmation override the details of the master agreement
The BTF - Basis Trading Facility - on ICE Futures is available for which of the following?
Gilt futures
Bund futures
JGB futures
Swap futures
Which of the following would explain the change in an option’s premium as a result of increasing interest rates and assuming all other things remain constant?
It will increase the value of calls and decrease the value of puts
Which of the following would not ensure that a derivative’s position was closed out if the market hit a particular level?
Market
Which of these is true for London?
Cleared derivative trades are subject to standard portfolio analysis of risk.
Which of the following best describes an arbitrage trade?
Holding a FTSE 100 portfolio and buying a FTSE 100 put
An investor believes that there will be a sharp move in an asset, either up or down, and wants to take advantage of this volatility. What is the most appropriate strategy to adopt?
Buy a call/buy a put, both at-the-money
Richmond is a fully invested investor who believes that the UK equity market is likely to fall in value. Richmond is considering a derivative strategy that would capitalise on this event but is concerned of incurring a large unexpected loss. He would, however, consider losing his initial stake as the price of the risk he is prepared to take on. Which of the following is the most suitable strategy?
Buying a put option on the FTSE 100 index
Certain exchanges allow exchange for physicals (EFP) on some of their contracts. Which of the following would NOT be a use for EFPs?
To swap one futures position for another
Tick value
Tick value = tick size x contract size.
Which of the following statements regarding tick value is incorrect?
It is the unit used to express ICE Future Europe’s options on futures strike prices
How often is variation margin applied on ICE?
Daily
Recent inflation data released in the UK has shown inflation has risen above the Monetary Policy Committe’s upper limit. Which of the following would you expect to happen to the prices of gilts and other fixed income instruments (including Treasury bills)?
Decrease, Decrease
The primary purpose for the issuance of UK government bonds is to finance what?
Excess spending