Multiple choice type questions for Financial Instruments and Markets As requested, below are questions from my "data base" of multiple choice type questions. I do not expect to be able to put the answers on the web before your final exam. I do not have a "data base" of the answers to these questions. Some of these
questions are on material that was on the first exam and other questions are on material that I covered last year but did not cover this year (such as margin, selling stock short). But since some students requested this "data base", it is here, if you find it useful.
1. Multiple Choice (____ points; each multiple choice question is worth ___ points)
Circle the correct answer. If you change your answer, indicate the new choice to the left of the question and circle it. 1.
Federal Funds are typically:
Loan from a dealer that is collateralized by Treasury securities. b.
Federal Reserve assets
Loans from the Federal Reserve to banks
Loans from banks to their “best” commercial customers e.
Overnight loans settled in immediately available funds
Eurodollars are best associated with:
The use of dollar currency ($100 bills) in less developed countries in Europe b.
The financing of Europeans by domestic US banks
c. The transfer of ownership of a domestic US bank deposit from a US company to a foreign based owner d.
The development of a common currency in Europe.
A hedger in the futures market hedges to prevent a loss in a business transaction, but also gives up: a.
A sizable fee to the exchange
The loss on the futures contract
The opportunity to gain from a favorable turn in prices of the item d.
The potential gain on the futures contract.
All the following are risks associated with futures contracts except: not good question a.
What action would the holder of a maturing (expiring) call option take with an option which cost $300, had a strike price of $50 and the price of the shares was $52, if the option expires today: a.
Let the option expire unexercised
Exercise the option
Request that the $300 be returned
Buy more call options with a strike of $53.
An S&L with a high negative GAP position for the next 180 days would most likely take which action to hedge its interest rate risk: a.
Buy futures contracts
Sell futures contracts
Sell put options on futures contracts
Buy put options on futures contracts
Both b and d above
The value of any option varies directly with:
The price variance of the underlying commodity
The time to expiration
The level of interest rates
The expected dividend payments on the underlying stock
Both a and b above
A farmer growing wheat is ______ wheat and may hedge price risk by _______ wheat futures: a.
First National Bank recently purchased a T-bill futures contract to hedge a risk position at the bank. If the price of the futures contract is increasing, a.
First National is “gaining”
First National is “losing” on futures.
First National is neither “gaining nor losing”
None of the above.
Daily changes in futures prices means that one party (hedger or speculator) has gained; another lost money on the contract. How are the exchanges able to keep the “daily” loser in the contract and prevent default: a.
Threat of bankruptcy
Daily margin calls if needed
Guarantees by third parties
A five-member federal regulatory commission, which serves as the primary regulator of the futures market is the: a.
Chicago Mercantile Exchange
Federal Commodity Futures Commission
Commodity Futures Trading Commission
Chicago Board of Trade
A bank that hedges its future funding costs in the T-bill futures market is: a.
Accepting some basis risk...
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