Revision Express Flashcards
An oil company is concerned that the price of oil will fall from its $55 a barrel, so hedges by selling futures at $55.50. When a dilvery contract price has bee agreed at $56 a barrel and the hedge is closed out at $56.30. What is the result?
Chapter 8
a 20 cent gain due to change in basis
In long gilt futures what is the implied repo rate?
Chapter 8
The funding cost that is implied in the futures prices.
What is the motivation for an investor to take out a horizontal currency spread?
Chapter 8
To profit from expected moves in volatility.
What strategy would a fund manager use to reduce the cost of a acquiring a stock?
Why?
Chapter 8
Covered short call.
The premium received makes it cheaper.
When an investor extends an existing futures hedge on a portfolio of FTSE 100 shares, which type of transaction occurs?
What spread?
Chapter 8
An intramarket spread.
What would be most appropriate for an investor that believes there will be a modest increase in price?
Chapter 8
Bull spread.
Why might a corporate treasurer undertake a derivatives transaction?
Chapter 8
Hedge a risk related to the companies business.
What requirement is imposed on short position holders when they are assigned?
Chapter 7
It requires them to complete the obligations set out in their contract.
What happens if the seller issues a tender notice between the first and last notice day?
Chapter 7
The clearing house will randomly assign a buyer to the underlying.
How is currency risk minimised for members of a clearing house?
Chapter 6
Members are required to hold an account in a clearing house currency.
What are the FCA rules for margin demands made by both the clearing house and clearing member?
Chapter 6
The margin demanded by the clearing member must be at least as much as the margin demanded by the clearing house, in order to remove the need to retain more financial resources.
In what key way does spread betting differ from CFDs?
Chapter 5
Only CFDs are subject to capital gains tax
When an Equity Swap takes place on a Bullet Swap basis, this indicates?
Chapter 5
Counterparty risk is reduced.
When does the seller become liable for any margin?
Chapter 4
At the point of trading.
What would one do if basis is expected to strengthen?
Buy what?
Chapter 4
Buy the spread.
