8006 Practice Questions

If the spot price for a commodity is lower than the forward price, the market is said to be in:

What is the notional value of one equity index futures contract where the value of the index is 1500 and the contract multiplier is $50:

A bank sells an interest rate swap to its client, with the client agreeing to pay the bank a fixed 4% and receive 3 month LIBOR + 100 basis points, payments due every quarter. After quarter 1, the 3 month LIBOR is 2% pa. Which of the following payments will happen in respect of this swap, assuming the contract notional is $100m, and the rate convention is 30/360.

If the quoted discount rate of a 3 month treasury bill futures contract is 10%, what is the price of a 3-month treasury bill with a principal at maturity of $100?

Which of the following statements are true:

I. All investors regardless of their expectations face the same efficient frontier which is always the market portfolio

II. Investors will have different efficient frontiers based upon their views of expected risks, returns and correlations

III. Investors risk appetite will determine their choice of the combination of risk-free and risky assets to hold

IV. If all investors have identical views on expected returns, standard deviation and correlations, they will hold risky assets in identical proportions

Which of the following statements is true:

I. The OTC market for foreign exchange is much larger than the exchange traded futures market for foreign currencies

II. DVP arrangements help avoid the risk of counterparty defaults on settlements

III. Exchanges offer the advantage of lower trading costs than ECNs

IV. ISDA master agreements form the basis of a large number of OTC derivative trades

A large utility wishes to issue a fixed rate bond to finance its plant and equipment purchases. However, it finds it difficult to find investors to do so. But there is investor interest in a floating rate note of the same maturity. Because its revenues and net income tend to vary only predictably year to year, the utility desires a fixed rate liability. Which of the following will allow the utility to achieve its objectives?

A stock is selling at $90. An investor writes a covered call on the stock with an exercise price of $100 in return for a premium of $3 per share. What would be the maximum gain or loss per share that the investor could make on this position?

Which of the following statements are true:

I. Cash markets tend to be more liquid than derivative markets

II. A higher credit risk is associated with lower liquidity in times of crises

III. A higher bid-ask spread indicates greater liquidity when compared to a lower bid-ask spread

IV. A higher normal market size indicates greater liquidity than a lower market size

Which of the following statements is true for a Credit Linked Note (CLN)?