Study Session 17
Derivatives (衍生品投资)
67. Derivative Markets and Instruments (衍生品市场和衍生工具)
1. A customized agreement to purchase a certain T-bond next
Thursday for $1000 is:
A. a swap.
B. an option.
C. a forward commitment.
2. A private agreement between two parties to exchange a series of
future cash flows, with at least one of the two series of cash flows
determined by a later outcome, is best characterized as a (n) :
A. swap.
B. futures contract.
C. over-the-counter contingent claim.
3. Which of the following statements is most accurate?
A. Forward contracts require that both parties to the transaction
have a high degree of creditworthiness.
B. Forward contracts are marked to market daily.
C. Futures contracts have more default risk than forward contracts.
4. A swap is best characterized as a
A. series of forward contracts.
B. derivative contract that has not gained widespread popularity.
C. contract that is binding on only one of the parties to the
transaction.
5. The most likely reason derivative markets have flourished is
that
A. derivatives are easy to understand and use.
B. derivatives have relatively low transaction costs.
C. the pricing of derivatives is relatively straightforward.
6. Concerning efficient financial( including derivative) markets,
the most appropriate description is that
A. it is often possible to earn abnormal returns.
B. the law of one price holds only in the academic literature.
C. arbitrage opportunities rarely exist and are quickly eliminated.
7. Financial derivatives contribute to market completeness because:
A. the market with financial derivatives allows traders to more
exactly shape the risk return characteristics of their portfolios.
B. it is a market in which the owner of an option has the right to
purchase the underlying good at a specific price, and this right
lasts until a specific date.
C. it is a market in which any and all identifiable payoffs can be
obtained by trading the securities available in the market.
8. At the time a forward contract is initiated, which of the
following is/are agreed upon by the two parties ?
A. The good to be exchanged and the price at which the exchange
will be made.
B. The time at which the exchange will take place.
C. All of above are agreed upon.
9. Which of the following statements is true of futures contracts?
A. All futures contracts are bought and sold on organized exchanges
and the terms of futures contracts are determined by the buyers and
sellers themselves.
B. The Clearinghouse serves to guarantee the performance of all
parties to futures contracts.
C. Both are true.
10. In negotiating a swap, the two counterparties agree to exchange:
A. a series of options.
B. a series of cash flows.
C. a series of forward contracts.
11. Financial derivatives contribute to market completeness by
allowing traders to do all of the following EXCEPT :
A. increase market efficiency through the use of arbitrage.
B. narrow the amount of trading opportunities to a more manageable
range.
C. engage in high risk speculation.
12. Which of the following is NOT an over-the-counter (OTC)
derivative?
A. A forward contract.
B. A swap agreement.
C. A futures contract.
13. A financial instrument that has payoffs based on the price of
an underlying physical or financial asset is a(n) :
A. option.
B. future.
C. derivative security.
14. Which of the following most accurately describes a derivative
security? A derivative:
A. has a payoff based on another asset.
B. always increase risk.
C. has no expiration date.
15. Which of the following contracts is least likely to be traded
on an exchange?
A. Futures contract.
B. Forward commitment.
C. Forward contract.
16. Which of the following statements regarding exchange-traded
derivatives is FALSE? Exchangetraded derivatives :
A. are illiquid and have secondary markets.
B. are standardized contracts.
C. often trade in a physical location.
17. All of the following are benefits of derivatives markets EXCEPT:
A. transactions costs are usually smaller in derivatives markets,
than for similar trades in the underlying asset.
B. derivatives markets help keep interest rates down and supply
valuable price information.
C. derivatives allow the shifting of risk to those who can most
efficiently bear it.
18. Typically, forward commitments are made with respect to all the
following EXCEPT:
A. inflation.
B. bonds.
C. equities.
19. A legally binding promise to buy 140 oz. of gold two months
from now at a price agreed upon today is a(n) :
A. take-or-pay contract.
B. forward commitment.
C. option.
20. Which of the following statements regarding a forward
commitment is FALSE? A forward commitment :
A. is a contractual promise.
B. involves an action in the future.
C. is not legally binding and can involve a stock index.
21. Which of the following statements is least accurate?
A. Futures contracts are easier to offset than forward contracts.
B. Forward contracts are generally more liquid than futures
contracts.
C. Forward contracts are easier to tailor to specific needs than
futures contracts.
22. The main risk faced by an individual who enters into a forward
contract to buy the S&P 500 Index is that
A. the market may rise.
B. the market may fall.
C. market volatility may rise.
23. For derivative contracts, the notional principal is best
described as
A. the amount of the underlying asset covered by the contract.
B. a measure of the actual payments made and received in the
contract.
C. being, conceptually and in aggregate, the best available measure
of the size of the market.
24. By volume, the most widely used group of derivatives is the one
with contracts written on which of the following types of underlying
assets?
A. Financial.
B. Commodities.
C. Energy-related.
25. Financial derivatives contribute to market completeness by
allowing traders to do all of the following EXCEPT :
A. increase market efficiency through the use of arbitrage.
B. hedge positions in other assets and engage in high risk
speculation.
C. narrow the amount of trading opportunities to a more manageable
range.
26. The process of arbitrage does all of the following EXCEPT:
A. promote pricing efficiency and produce riskless profits.
B. result in the correction of mispriced assets.
C. insure that risk-adjusted expected returns are equal.
27. The process that ensures that two securities positions with
identical future payoffs, regardless of future events, will have the
same price is called:
A. arbitrage.
B. the law of one price.
C. payoff parity.
28. Financial derivatives also provide a powerful tool for limiting
risks that individuals and firms face in the ordinary conduct of
their business. This is an example of:
A. trading efficiency.
B. speculation.
C. risk management.
29. If the risk-free rate of interest is 5 percent and an investor
enters into a transaction that has no risk, the rate of return the
investor should earn in the absence of arbitrage opportunities is
A. 0%.
B. between 0% and 5%.
C. 5%.
30. Which of the following is NOT one of the conditions that must
be met for a trade to be considered an arbitrage?
A. There is no risk.
B. There are no commissions.
C. There is no initial investment and there is a guaranteed profit.
31. One reason that criticism has been leveled at derivatives and
derivatives markets is that:
A. derivatives have too much default risk.
B. markets for derivatives seldom function efficiently like a stock
exchange.
C. they are complex instruments and sometimes hard to understand.
32. Which of the following relationships between arbitrage and
efficient markets is least accurate?
A. The concept of rationally priced financial instruments
preventing arbitrage opportunities is the basis behind the noarbitrage principle.
B. Momentary deviations from market efficiency can create an
arbitrage opportunity.
C. Market efficiency refers to the low cost of trading derivatives
because of the lower expense to traders.
33. Which of the following is an example of an arbitrage
opportunity?
A. A portfolio of two securities that will produce a certain return
that is greater than the riskfree rate of interest.
B. A stock with the same price as another has a higher rate of
return.
C. A stock with the same price as another has a higher expected
rate of return.
(二) 习题答案
1. C.
This non-standardized type of contract is a forward commitment.
2. A.
A swap is equivalent to a series of forward contracts.
3. A.
Forward contracts are usually private transactions that do not have
an intermediary such as a clearinghouse to guarantee performance by
both parties. This type of transaction requires a high degree of
creditworthiness for both parties.
4. A.
A swap is most like a series of forward contracts. An example is a
swap in which one party makes a set of fixed-rate payments over time
in exchange for a set of floating-rate payments based on some
notional amount.
5. B.
One reason derivative markets have flourished is that they have
relatively low transaction costs. For example, buying a risk-free
Treasury security and a futures contract on the S&P 500 Index to
replicate payoffs to the index is cheaper than buying the 500 stocks
in the index in their proper proportions to get the same payoff.
6. C.
Efficient markets are characterized by the absence, or the rapid
elimination, of arbitrage opportunities.
7. A.
Financial derivatives contribute to market completeness because the
market with financial derivatives allows traders to more exactly
shape the risk return characteristics of their portfolios.
8. C.
By definition, all are agreed at the outset of a forward contract.
9. C.
Futures contracts are highly standardized and trade on organized
exchanges with a Clearinghouse to guarantee performance. All terms of
the contracts are determined by the exchange, not by the traders.
10. B.
11. B.
Financial derivatives increase the opportunities to either
speculate or hedge on the value of underlying assets. This adds to
market completeness by increasing the range of identifiable payoffs
that can be used by traders to fulfill their needs. Financial
derivatives such as market index futures can also be easier and
cheaper than trading in a diversified portfolio, thereby adding to
the opportunities available to traders.
12. C.
Futures contracts are exchange-traded; forwards, swaps, and most
bond options are OTC derivatives.
13. C.
Options, futures, and forwards are examples of types of derivative
securities.
14. A.
A derivative's value is "derived" from another asset.
15. C.
A forward contract is traded in the over-the-counter market, not an
exchange. Derivative and forward commitment are broad terms that
could include forwards, futures, or swaps. Unlike forward contracts,
futures contracts are standardized, which allows them to be traded on
the exchange.
16. A.
Derivatives that trade on exchanges have good liquidity in most
cases. They have the other characteristics listed.
17. B.
The existence of derivatives markets does not affect the level of
interest rates.
18. A.
Forward commitments can be customized and could be written on some
measure of inflation, but typically they are not. The volume of
forward commitments, including forward contracts and futures
contracts, on bonds, equities, and interest rates is in the many
billions of dollars.
19. B.
It is a forward commitment; it may be used to hedge or may be used
to speculate on the price of gold in two months.
20. C.
A forward commitment is a legally binding promise to perform some
action in the future and can involve a stock index or portfolio.
21. B.
Forward contracts are usually less liquid than futures contracts
because they are typically private transactions tailored to suit both
parties, unlike futures contracts, which are usually for standardized
amounts and are exchange traded.
22. B.
If the market falls, the buyer of a forward contract could pay more
for the index, as determined by the price that was contracted for at
the inception of the contract, than the index is worth when the
contract matures. Although it is possible that a rise in interest
rates could cause the market to fall, this might not always happens
and thus is a secondary consideration.
23. A.
The notional principal is the amount of the underlying asset
covered by the derivative contract.
24. A.
The most widely used derivative contracts are written on underlying
assets that are financial, such as Treasury instruments and stock
indices.
25. C.
Financial derivatives increase the opportunities to either
speculate or hedge on the value of underlying assets. This adds to
market completeness by increasing the range of identifiable payoffs
that can be used by traders to fulfill their needs. Financial
derivatives such as market index futures can also be easier and
cheaper than trading in a diversified portfolio, thereby adding to
the opportunities available to traders.
26. C.
Arbitrage does not insure that the risk-adjusted expected returns
to two risky assets will be equal. Arbitrage is based on risk-free
portfolios and promotes efficient pricing of assets. When an
arbitrage opportunity is presented by a mispricing of assets, the
increased supply of the ' overpriced' asset and the increased demand
for the 'underpriced' asset by arbitrageurs, will move the prices
toward equality and act to correct the mispricing.
27. A.
ff two securities have identical payoffs regardless of events, the
process of arbitrage will move prices toward equality. Arbitrageurs
will buy the lower priced position and sell the higher priced
position, for an immediate profit without any future liability. The
law of one price ( for securities with identical payoffs) is not a
process; it is 'enforced' by arbitrage.
28. C.
Financial derivatives provide a powerful tool for limiting risks
that individuals and firms face in the ordinary conduct of their
business. This is known as risk management.
29. C.
In the absence of arbitrage opportunities, an investor beating no
risk should expect to earn the risk-free rate.
30. B.
In order to be considered arbitrage there must be no risk in the
trade.
It doesn't matter if commissions are paid as long as the amount of
the price discrepancy is enough to offset the amount paid in
commissions. There must be a guaranteed profit in an arbitrage trade.
In order to be considered arbitrage there must be no initial
investment of one's own capital. One must finance any cash outlay
through borrowing.
31. C.
The fact that derivative securities are sometimes complex and often
hard for non-financial commentators to understand has led to
criticism of derivatives and derivative markets.
32. C.
Market efficiency refers to the concept of all relevant information
being reflected in an assets price, not the low cost of trading
derivatives. One necessary criterion for efficient markets is
instantaneous adjustment of market values. Arbitrage, by trading on a
price difference between identical assets, causes an imbalance
between demand and supply that instantaneously corrects the pricing
difference.
33. A.
An arbitrage opportunity exists when a combination of two
securities will produce a certain payoff in the future that produces
a return that is greater than the risk-free rate of interest.
Borrowing at the riskless rate to purchase the position will produce
a certain future amount greater than the amount required to repay the
loan.
68. Forward Markets and Contracts(远期市场和远期合约)
(一)强化习题
1. The term (maturity) of a forward rate agreement is 90 days and
the underlying rate is 180 - day LIBOR. If 180-day LIBOR increases
over the term (life) of the contract, which of the following best
describes the descriptive notation for the contract and the party
receiving payment at expiration, respectively?
Descriptive notation
Party receiving payment at expiration
①A. 3 × 6
Long
②B. 3 × 9
Long
③C. 3 × 6
Short
A. ① B. ② C. ③
2. Which is least likely to be true? Forward contracts:
A. are unique contracts.
B. are private contracts.
C. require no up front cash and are default risk free.
3. Which is the only type of commodity where trading in forward
contracts is larger than trading with future contracts?
A. Agricultural.
B. Foreign currency.
C. Interest rate.
4. The short in a deliverable forward contract:
A. makes a cash payment to the long at settlement.
B. receives a payment at contract initiation.
C. is obligated to deliver the specified asset.
5. A company is planning on setting up a new financing arrangement
where $100 million will be borrowed in order to finance a major
expansion into a foreign market. The CFO is concerned that there may
be an interest rate decline within the next two months. There is
significant concern among the executives of the company that any
delay would seriously hamper the company's chances of gaining a
foothold in the new market and feel that it is vital to proceed
without delay. The CFO obtains the following quotes from a dealer for
an FRA:
Dealer
Quotes
60-Day
LIBOR=0.0450
90-Day
LIBOR=0.0440
180-Day
LIBOR=0.1420
The contract covers a notional principal of $100 million. The
company goes short on the FRA and 90 days later when the contract
expires, the 90-day LIBOR rate is 4. 50 percent. What does the
company collect from, or pay to, the dealer?
A. The company pays $24722.
B. The company pays $25000.
C. The company pays $146699.
6. Which of the following statements most accurately describes the
difference between LIBOR and Euribor?
A. LIBOR is a lending rate, while Euribor is a borrowing rate.
B. LIBOR is a representative borrowing rate on U. S. dollars, while
Euribor is a representative borrowing rate on euros.
C. LIBOR is a global risk-free rate, while Euribor is a European
risk-free rate.
7. A dealer in the forward contract market:
A. can not be a bank.
B. may enter into a contract with another dealer.
C. gets a small payment for each contract at initiation.
8. Which of the following statements regarding early termination of
a forward contract is TRUE?
A. There is no way to terminate a forward contract early.
B. A party who enters into an offsetting contract to terminate has
no risk.
C. Early termination through an offsetting transaction with the
original counterparty eliminates default risk.
9. Which of the following statements regarding equity forward
contracts is FALSE?
A. Equity forwards may be settled in cash.
B. Dividends are never included in index forwards.
C. A short position in equity forward could not hedge the risk of a
purchase of that equity in the future.
10. Which of the following statements regarding forward contracts
is TRUE?
A. The buyer of a forward contract has agreed to deliver the
underlying asset at a specific price and date in the future whereas
the seller has agreed to accept delivery of the underlying at the
same agreed upon price and date.
B. When prices increase, the buyer of a forward contract gains and
the seller of a forward contract loses.
C. The buyer of a forward contract gains when prices decrease, and
the seller of a forward contract loses when prices increase.
11. Default risk in a forward contract:
A. only applies to the long, and is the probability that the short
can not acquire the asset for delivery.
B. is the risk to either party that the other party will not
fulfill their contractual obligation.
C. is lessened by the mark-to-market feature found in a typical
forward contract.
12. Which of the following is NOT a method of terminating a forward
contract prior to expiration?
A. Exercise a swaption.
B. Make an agreed upon payment to the counterparty.
C. Enter into an offsetting forward contract with a party not
involved in the original forward contract.
13. Some forward contracts are termed cash settlement contracts.
This means:
A. either the long or the short in the forward contract will make a
cash payment at contract expiration and the asset is not delivered.
B. at settlement, the long purchases the asset from the short for
cash.
C. at contract expiration, the long can buy the asset from the
short or pay the difference between the market price of the asset and
the contract price.
14. All of the following are typically end users of forward
contracts EXCEPT:
A. governmental units.
B. non-profit institutions.
C. a forwards dealer.
15. Which of the following statements regarding forward contract
dealers is FALSE?
A. Forward contract dealers are often banks.
B. Dealers are compensated through up-front payments by the parties
to forward contracts.
C. Dealers offer long and short forward contracts at different
prices.
16. A portfolio manager is long an equity index contract at 995.6
with a notional value of $40 million. If the index is at 969.2 on the
settlement date, the amount the manager must pay is closest to :
A. $1.09 million.
B. $38.91 million.
C. $1.06 million.
17. When a party to a forward contract terminates the contract
prior to the original expiration date by entering into a perfectly
offsetting forward contract with a second counterparty:
A. the party terminating the forward contract has no default risk,
but both counterparties face default risk.
B. there is no future liability, but default risk remains for all
parties until the original contract settlement date.
C. the party terminating the contract is exposed to default risk,
but has no further asset price risk.
18. The settlement price of a deliverable forward contract at 6
percent on a $1 million 90-day Treasury bill would be:
A. $940000.
B. $6000.
C. $985000.
19. The price of a 90-day forward contract on a 90-day Treasury
bill will be:
A. above the current price of a 90-day T-bill.
B. above the current price of a 180-day T-bill.
C. either above or below the current price of a 180-day T-bill.
20. The forward contract price of a coupon-bearing bond is
typically quoted as:
A. the bond dollar-price plus accrued interest as of the settlement
date.
B. a discount to the face value.
C. a yield to maturity at the settlement date.
21. If 60-day London Interbank Offered Rate (LIBOR) is 6 percent,
the interest on a 60-day LIBOR-based Eurodollar deposit of $990000 is:
A. $10000.
B. $9900.
C. $60000.
22. Which of the following statements regarding Eurodollar time
deposits is FALSE?
A. Rates are quoted as an add-on yield and are based on a 360-day
year.
B. Sometimes the best rates are available in New York City.
C. They are available in Switzerland.
23. Which of the following statements regarding a LIBOR-based FRA
is TRUE?
A. If LIBOR increases unexpectedly over the contract term, the long
will be required to make a cash payment at settlement.
B. FRAs can be based on interest rates for 30, 60, or 90-day
periods.
C. The contract rate will change with LIBOR over the term of the
agreement.
24. A forward rate agreement (FRA) :
A. must consider the creditworthiness of the parties making the
deal when determining the rate.
B. requires the long to pay cash to the short if the rate specified
in the contract at expiration is below the current floating rate.
C. can sometimes be viewed as the right to borrow money at belowmarket rates.
25. A 60-day $10 million forward rate agreement (FRA) on 90-day
London Interbank Offered Rate (LIBOR) (a 2 × 5 FRA) is priced at 4
percent. If 90-day LIBOR at the expiration date is 4.1 percent, the
long:
A. receives $2500.00.
B. receives $2474.63.
C. pays $2500.00.
26. Consider a $1 million 90-day forward rate agreement based on
60-day London Interbank Offered Rate (LIBOR) with a contract rate of
5 percent. If, at contract expiration, 60-day LIBOR is 6 percent, the
short must pay:
A. $1652.89.
B. $1650.17.
C. $1572.33.
27. Macklin Metals has received 80 million pounds sterling. The
company plans to spend $120 million on a project in the United States
in 90 days. Macklin inters into a cash settlement currency forward to
exchange the pounds for U. S. dollars at a rate of $1.50 per pound in
90 days. If the exchange rate is $1.61 per pound at the settlement
date, the cash settlement Macklin will pay or receive is closest to:
A. $5.5 million payment.
B. $8.8 million payment.
C. $5.5 million receipt.
28. When calculating the settlement payment on a long position in a
London Interbank Offered Rate (LIBOR) -based forward rate agreement,
the denominator is best described as :
A. the interest differential between a loan made at the contract
rate and one made at the market rate at contract expiration.
B. a discount factor based on LIBOR at settlement.
C. a discount factor based on the contract LIBOR rate.
29. A currency forward contract:
A. is priced using the future interest rate on a foreign currency.
B. requires a payment at settlement based on London Inter-bank
Offered Rate.
C. can be a deliverable contract.
30. On the settlement date of a forward contract:
A. the short may be required to sell the asset.
B. the long must sell the asset or make a cash payment.
C. at least one party must make a cash payment to the other.
31. An investor can exit a forward position prior to contract
expiration by all of the following methods EXCEPT:
A. entering into an offsetting contract with the original
counterparty or a second (different) counterparty.
B. exercising the early delivery option.
C. making a cash payment or accepting a cash payment by agreement
with the original counterparty.
32. A forward contract that must be settled by a sale of an asset
by one party to the other party is termed a :
A. physicals-only contract.
B. deliverable forward contract.
C. take-and-pay contract.
33. Which of the following statements regarding forward contracts
is FALSE?
A. Dealers make the majority of their profits by anticipating price
moves in the underlying asset.
B. Dealers will enter into forward contracts with other dealers.
C. End users of forwards most often have a business exposure to
price risk from the asset covered by the contract.
34. Which statement about equity forward contracts is least likely
accurate?
A. Investors can use equity forward contracts to speculate on
stock-price increases.
B. Dividend payments are usually included in equity forward
contracts.
C. Equity forward contracts may require asset delivery or cash
settlement.
35. A Eurodollar time deposit:
A. is priced on a discount basis.
B. is a certificate of deposit denominated in Euros.
C. may be issued by a Japanese bank.
36. Euribor is :
A. a London interbank lending rate.
B. the rate on U. S. dollar deposits in continental Europe.
C. published by the European Central Bank.
(二)习题答案
1. B.
The forward rate agreement contract id for three months and
interest is paid nine months from the contract initiation date, hence
the notation 3 × 9 ; when the rate on the underlying increases, the
party that is long receives the payment at expiration.
2. C.
Forwards have default risk. The seller may not deliver, and the
buyer may not accept delivery.
3. B.
Trading in foreign currency forwards is far larger than the trading
in futures. For example, with international trade, businesses can
hedge against adverse currency fluctuations. But each business
arrangement is unique, and most require the flexibility of a forward,
whose terms are not standardized, that meets their special needs.
4. C.
There is typically no payment made at contract initiation, and
either party may have default risk if there is any probability that
the counter party may not perform under the terms of the contract.
5. A.
This is a 3 × 6 FRA since it expires in 90 days and is based on
90-day LIBOR, which is a 6- month period from the time the contract
is entered into. Instead of declining, interest rates ended higher
than the CFO expected. The company is in a short position and will
have to make a payment to the dealer. The payoff for an FRA is:
notional amount
Where LIBORT is the underlying rate at expiration of the FRA
We get: $100000000×
=$24.722
The numerator is the extra interest cost on a 90-day loan at an
annual rate of 4.5% instead of the forward rate of 4.4%. The
denominator is to discount this for the 90-days between settlement
and when the extra interest would be paid.
6. B.
LIBOR is the rate at which London banks lend dollars to other
London banks; Euribor is the rate at which major European banks
borrow euros from each other.
7. B.
Forward contracts dealers are commonly banks and large brokerage
houses. They frequently enter into forward contracts with other
dealers to offset long or short exposure. No payment is typically
made at contract initiation.
8. C.
Terminating a forward contract early by entering into an offsetting
forward contract with a different counter party exposes a party to
default risk. If the offsetting transaction is with the original
counter party, default risk is eliminated.
9. B.
Index forward contracts may be written total return contracts,
which include dividends. Contracts may be written to settle in cash,
be deliverable, or may be on custom portfolios. A long position is
used to reduce the price risk of all expected future purchase.
10. B.
If the price of the underlying instrument sold forward increases,
the seller of the futures contract will have to pay more than planned
to deliver the product and will lose on the forward part of the
transaction.
11. B.
Default risk in forward contracts is the risk to either party that
the other party will not perform, whether that means pay cash or
deliver the asset. Mark-to-market payments as the asset price changes
are a feature of futures (not forward) contracts.
12. A.
A swaption can be used to terminate a swap.
13. A.
In a cash settlement forward contract there is a cash payment at
settlement by either the long or the short depending on whether the
market price of the asset is below or above the contract price at
expiration. The underlying asset is not purchased or sold at
settlement.
14. C.
A dealer is not an end user. Dealers typically take offsetting
positions with different end users to limit their exposure to the
asset price risk in individual forward contracts.
15. B.
There is typically no payment from either the long or the short to
enter into a forward contract. Dealers make money through the bid-ask
spread, the difference between the forward prices they offer to
buyers and sellers.
16. C.
The actual index price is 2. 6517 percent below the contract price
(969.2/995.6 -1 = - 2.6517% ). Since the long manager agreed to pay
the higher price but could only sell at the lower price, she must
settle in cash for 2.6517 percent of the $40 million notional amount,
or about $1.06 million.
17. C.
When a forward contract is terminated by an offsetting contract
with a second counterparty, there is no further asset price risk, but
since there are two separate contracts with different counterparties,
all parties are exposed to default risk until both contracts are
settled. Since the two contracts may have different forward prices,
the terminating party may have a future liability at settlement, but
the amount is fixed at the time the offsetting contract is initiated.
The terminating party may have‘locked in' a future gain or loss,
depending on the difference between the forward prices of the two
offsetting contracts.
18. C.
Treasury bills are quoted as a discount from face value, which is
annualized based on a 360 day year. (90/360) × 6% = 1.5%, so the
contract price of the $1 million bill is (1 -0.015) × 1000000 =
$985000.
19. B.
Since purchasing a 180-day T-bill today will result in a 90-day Tbill 90 days from now, the forward price must be higher than the
current price of a 180-day T-bill. As long as interest rates are
positive, no one would agree to sell a 180-day bill at a lower price
90 days later.
20. C.
The contract price for a coupon-bearing bond is typically quoted as
its yield to maturity. The accrued interest is (customarily) added to
the price on a deliverable contract, but not included in the stated
price quote.
21. B.
0.06 × (60/360) × 990000 = $9900.
22. B.
Eurodollar time deposits are U. S. dollar denominated deposits
outside the United States. Rates are quoted as an annualized add-on
yield, based on a 360-day year.
23. B.
A LIBOR-based contract can be based on LIBOR for various terms.
They are settled in cash and the contract rate is fixed for the life
of the contract. The long will receive a payment when LIBOR is higher
than the contract rate at settlement.
24. C.
If the floating rate is above the rate specified in the agreement,
the long position can be viewed as the right to borrow at belowmarket rates. Since the contracts are settled in cash and no loan is
made, the creditworthiness of the parties is irrelevant to the
forward interest rate, so a riskless rate (or close proxy, such as
LIBOR) can be specified in the contract.
25. B.
[(0.041 -0.040) × (90/360) × 10000000]/[ 1 +0.041 × (90/360) ] =
$2474.63.
26. B.
[ (0.06 -0.05) × (60/360) × 1000000] / [ 1 +0.06 × (60/360) ] =
1650.17.
27. B.
Under the contract, Macklin receives:
80 million pounds × $1.50 = $120.0 million
At market rates, Macklin would receive:
80 million pounds × $1.61 = $128.8 million
Macklin must pay the difference, $8.8 million ( $128.8 million$120 million), as the
cash settlement to the counterparty.
28. B.
Since the interest differential between a loan made at the contract
rate and one made at the market rate would be realized at the end of
a loan period beginning at the settlement date, it must be discounted
to get the value at the settlement date. The correct rate for this
discounting is the actual rate ( market rate) at the settlement date.
The interest differential is the numerator of the formula for
calculating the settlement value.
29. C.
A currency forward contract can be a deliverable or cash-settlement
contract. It is a contract to exchange fixed amounts of two
currencies at settlement and its value depends on market exchange
rates at contract expiration.
30. A.
A forward contract may call for settlement in cash or for delivery
of the asset but does not typically contain an option to do one or
the other. Under a deliverable contract, the short is required to
deliver the asset at settlement, not to make a cash payment.
31. B.
There is typically no early delivery option in a forward contract.
The other three methods are all usual ways of terminating a forward
contract prior to the settlement date specified in the contract.
32. B.
A deliverable forward contract can be settled at expiration only by
actual delivery of the asset in exchange for the contract value. The
other terms are made up.
33. A.
Dealers do not make most of their profits from speculating on price
moves or interest rate moves. They profit from the bid-ask spread.
They take offsetting positions with different end users to hedge
their price risk.
34. B. Dividend payments are usually not included in equity forward
contracts. Investors can use equity forwards to speculate on stock
price movements. Most equity index forward contracts are settled in
cash, but since they are custom instruments, forwards may specify
either cash settlement or delivery of the equity shares specified in
the contract.
35. C.
Eurodollar time deposits are U. S. dollar-denominated accounts with
banks outside the U. S. and are quoted as an add-on yield rather than
on a discount basis.
36. C.
Euribor is the interbank lending rate for Euro denominated loans,
published by the European Central Bank, and compiled in Frankfurt.
69. Futures Markets and Contracts(期货市场和期货和约)
(一)强化习题
1. The following information relates to a futures market contract:
Initial futures price on
$100
Day 0
Initial margin requirement
$5
Maintemance rnargin
$3
requirement
Settlement price on Day 1
$103
Settlement price on Day 2
$ 96
Settlement price on Day 3
$98
If no funds are withdrawn and margin calls are met at the beginning
of the next day, the ending balance on Day 3 for an investor with a
short position of 10 contracts is closest to:
A. $30.
B. $50.
C. $100.
2. If left open until expiration, the type of futures contract that
is most likely settled in cash is
A. Commodity.
B. Eurodollar.
C. Currency.
3. The following information relates to an investor's positioning the
futures market:
Initial futures price per contract on $100
Day 0
Initial margin requirement per
$5
contract
Maintemance rnargin requirement
$3
Number of contracts held by the
$10
investor
Position taken by the investor
Long
Settlement price per contract on Day 1 $ 97
If the investor deposited enough funds to just meet the initial
margin requirement, the amount of funds that the investor would be
required to deposit on Day 2 is closest to:
A. $0.
B. $10.
C. $25.
4. Do "margin" in the stock market and "margin" in the futures
market, respectively, mean that an investor has received a loan that
reduces the amount of his own money required to complete the
transaction?
"Margin" in the stock market "Margin" in the futures market
①A. No No
②B. No Yes
③C. Yes No
A.① B.② C.③
Answer the question 5 and 6 based on the text below:
It is April 15, and a trader is entered into a short position in two
soybean meal futures contracts. The contracts expire on August 15,
and call for the delivery of 100 tons of soybean meal each. Further,
because this is a futures position, it requires the posting of a
$3000 initial margin and a $1500 maintenance margin per contract. For
simplicity, however, assume that the account is marked to market on a
monthly basis. Assume the following represent the contract delivery
prices (in dollars per ton) that prevail on each settlement date:
April 15 (initiation)
173.00
May 15
179.75
June 15
189.00
July 15
182.50
August 15 (delivery)
174.25
5. What is the equity value of the margin account on the May 15
settlement date, including any additional equity that is required to
meet a margin call?
A. $4650.
B. $2300.
C. $2700.
6. Based on the May 15 settlement date, which of the following is
TRUE?
A. Since the equity value fell below the maintenance level, a
variation margin is called.
B. Due to the fact that the equity value falls below the initial
margin, a variation margin is called to restore the equity value of
the account to it's initial level.
C. The equity value falls below the initial margin.
7. Sue Wilkins buys one corn futures contract at $3.00 per bushel
(one contract is for 5000 bushels). The initial margin requirement is
10 percent of the total contract purchase price, and the maintenance
margin level is 65 percent. What is the amount of the per bushel
price decline that will require a maintenance margin call to Wilkins?
A. $0.1250.
B. $0.675.
C. $0.1050.
8. A trader has a short position in a wheat contract. The initial
margin is $2000. The maintenance margin is $1500. There are 5000
bushels in each wheat contract. On August 10, the price is $1.89 per
bushel What is the price at which the trader will receive a
maintenance margin call?
A. $1.99.
B. $1.79.
C. $1.69.
9. Which type of futures contract does NOT allow for the underlying
goods to be delivered?
A. Interest rate.
B. Index.
C. Foreign currency.
10. If the balance in a trader's account falls below the
maintenance margin level, the trader will have to deposit additional
funds into the account. The additional funds required is called the:
A. initial margin.
B. variation margin.
C. marking to market.
11. On the maturity date, stock index futures contracts require
delivery of:
A. common stock.
B. common stock plus accrued dividends.
C. cash.
12. Which of the following statements about speculators and hedgers
in the futures market is TRUE?
A. Hedging can allow a business to guard against a price increase
in a commodity without sacrificing profit if the commodity price
decreases.
B. Hedgers guard against market price changes that would cause a
reduction in their operating profit.
C. A speculator would use futures to take a short position in a
commodity if its price is expected to increase.
13. Which of the following activities in the futures market
describes a short hedge?
A. Intercon Bakery has a contract with several hotel chains to
supply a variety of bread products at a set contract price. To
protect against their cost of wheat increasing they periodically
purchase wheat futures.
B. A trader who purchases commodity futures but closes out his
position prior to the end of the trading day.
C. A farmer with corn acreage who short sells corn futures.
14. A silver futures contract requires the seller to deliver 5000
Troy ounces of silver. An investor sells one July silver futures
contract at a price of $8 per ounce, posting a $2025 initial margin.
If the required maintenance margin is $1500, the price per ounce at
which the investor would first receive a maintenance margin call is
closest to:
A. $5.92.
B. $7.89.
C. $8.11.
15. Consider the following information:
On May 1 Party A trades on the futures exchange to buy one oats
contract of 10000 bushels for delivery in September. Party B has
complimentary requirements. The price is $2 per bushel.
Assume that the contract closes on May 2 at 190 cents per bushel.
Assume the initial margin was $3000 and the maintenance margin
$2500.
Assume further that on May 3, the price has dropped to $1.80 per
bushel.
The price at which a maintenance margin call will be received is
equal to:
A. $2500.
B. $3000.
C. $500.
16. When using delivery as a method to close a futures contract,
completion is usually achieved:
A. when the trader transacts in the futures market to bring his or
her net position in particular futures contract back to zero.
B. when two traders agree to a simultaneous exchange of a cash
commodity and futures contracts based on that cash commodity.
C. through the physical delivery of a particular good or by cash
settlement.
17. Joe Savvy wishes to speculate in March wheat futures by selling
one contract Prior to selling the one contract, Joe had no position
in wheat futures at all. He sells to Billy Bland who already had a
short position in the March wheat futures contract. His sale of one
futures contract will produce :
A. one contract of volume.
B. one contract of open interest.
C. both A and B.
18. The clearinghouse's futures position is relatively low-risk
because:
A. all its obligations to deliver are matched to other investors'
obligations to make delivery.
B. it is highly capitalized and backed by large credit lines.
C. of both A and B.
19. If a futures investor has a SHORT position and futures prices
rise, his margin account will:
A. show a GAIN.
B. suffer a LOSS.
C. remain unchanged.
20. Mary A Contrary has a SHORT position in 15 November heating oil
contracts. She buys 15 December heating oil contracts. Ms. Contrary
has:
A. closed her futures position by offset.
B. initiated a new LONG futures position in addition to her
existing SHORT position.
C. initiated an exchange-for-physicals (EFP).
21. Which of the following statements about forward and future
contracts is FALSE?
A. A future requires the contract purchaser to receive delivery of
the good at a specified time.
B. A predetermined price to be paid for a good is a necessary
requirement in the terms of a forward contract.
C. The primary difference between forwards and futures is that only
futures are considered financial derivatives.
22. Lisa Cox feels that the price of corn is going to rise in the
future and wants to lock in a price using either a futures or forward
contract. She is unfamiliar with the differences between the two
instruments and asks her associate, Matt Kudrow, to explain the
differences. Which of Kudrow's comments is TRUE? In futures markets,
the role of the clearinghouse is to:
A. prevent arbitrage and enforce federal regulations.
B. act as guarantor to both sides of a futures trade.
C. reduce transaction costs by making contract prices public.
23. A trader buys (takes a long position in) a T-bill futures
contract ( $1 million face value) at 98.14 and closes it out at a
price of 98.27. On this contract the trader has :
A. lost $325.
B. gained $325.
C. lost $1300.
24. The daily process of adjusting the margin in a futures account
is called:
A. initial margin.
B. variation margin.
C. marking to market.
25. In the futures market, a contract does not trade for two days
because trades are not permitted at the equilibrium price. The market
for this contract is:
A. limit up.
B. locked limit.
C. limit down.
26. Funds deposited to meet a margin call are termed:
A. daily margin.
B. loan payments
C. variation margin.
27. Which of the following statements is FALSE?
A. Hedgers trade to reduce some preexisting risk exposure.
B. The clearinghouse guarantees that traders in the futures marker
will honor their obligations.
C. If an account rises to or exceeds the maintenance margin, then
the trader must deposit variation margin.
28. Which of the following is a futures exchange member who can
execute public orders?
A. Scalper.
B. Day trader.
C. Floor broker.
29. For a futures trade:
A. a single price is determined by supply and demand.
B. the seller receives the bid price; the buyer pays the ask price.
C. the purchase of the asset is at a negotiated price.
30. Which of the following statements regarding a futures trade of
a deliverable contract is FALSE?
A. The long is obligated to purchase the asset.
B. The short is obligated to deliver the asset.
C. Equilibrium futures price is known only at the end of the
trading day.
31. Three 125000 euro futures contracts are sold at a price of
$1.0234. The next day the price settles at $1.0180. The mark to
market for this account changes the previous day's margin by :
A. + $675.
B. - $675.
C. + $2025.
32. A trader is long four July gold futures contracts, each with a
contract size of 300 oz. If the price of July gold increases from
$380.20 to $381.00 per ounce the change in the margin balance will
be :
A. $960.
B. - $960.
C. $240.
33. An investor bought a futures contract covering 100000 Mexican
Pesos at 0.08196 and deposited margin of $320. The following day the
contract settlement price was 0.08201. The new margin balance in the
account is:
A. $314.
B. $325.
C. $380.
34. When a futures trader receives a margin call what must he or
she do to bring the position up to the initial margin? The futures
trader must:
A. deposit maintenance margin.
B. deposit the daily settlement value.
C. deposit variation margin.
35. Which of the following statements about closing a futures
position is least accurate?
A. Few futures positions are settled by delivery of cash or assets.
B. Except for exchange for physicals (EFP) transactions, futures
contracts must be closed on the exchange floor.
C. Closing a position through delivery refers exclusively to the
physical delivery of goods.
36. Which of the following statements regarding the mark to market
of a futures account is FALSE? Marking to market of a futures account:
A. may result in a margin balance above the initial margin amount
and may be done more often than daily.
B. is only done when the settlement price is below the maintenance
price.
C. effectively adjusts the price of the future to the new
equilibrium level.
37. Assume the holder of a long futures position negotiates
privately with the holder of a short futures position to accept
delivery to dose out both the long and short positions. Which of the
following statements about the transaction is most correct? The
transaction is:
A. also known as delivery.
B. also known as an exchange of physicals.
C. the most common way to close a futures position.
38. Which of the following describe(s) a hedger?
A. An oil refiner who has a large inventory of unleaded gasoline
that will not be sold for 3 months takes a SHORT position in unleaded
gasoline futures contracts.
B. An orange grower will harvest oranges and process them into
orange juice at the end of next month. He sells (takes a SHORT
position in) orange juice futures today.
C. All of the above describe hedgers.
39. The standardization of futures contracts promotes liquidity
because:
A. all the participants in the market know exactly what is being
offered for sale, and they know the terms of the transactions.
B. it guarantees that all of the traders in the futures market will
honor their obligations and that futures contracts trade in a
smoothly functioning market.
C. it provides a safeguard whereby traders are required to realize
any losses in cash on the day they occur.
40. The clearinghouse in a futures contract performs all but which
of the following roles? The clearinghouse :
A. allows traders to reverse their position without having to
contact the other side of the position.
B. guarantees the physical delivery of the underlying asset to the
buyer of futures contracts.
C. splits each trade and acts as a buyer to futures sellers and as
a seller to futures buyers.
41. Which of the following statements about the futures market is
most accurate?
A. Speculators trade to reduce some preexisting risk exposure.
B. If a trader's account falls below the maintenance margin level
they have three days to bring it back up to the maintenance margin
level.
C. Open interest is the number of futures contracts for which
delivery is currently obligated.
42. The settlement price for a futures contract is:
A. an average of the trade prices during the ' closing period'
B. the price of the last trade of a futures contract at the end of
the trading day.
C. the price at which all trades over a certain period are executed.
43. In commodity trading, the exchange removes any daily losses
from a trader's account and acids any gains to the trader's account.
This process is known as :
A. initial margin.
B. maintenance margin.
C. marking to market.
44. Which of the following statements about closing a futures
position through delivery is most accurate?
A. Delivery is also known as exchange for physicals (EFP).
B. Depending on the wording of the contract, a trader may close a
contract by either delivering the goods to a designated location or
by making a cash settlement of any gains or losses.
C. Although the popularity of physical delivery has decreased over
time, delivery by cash settlement remains the most popular method of
closing a futures position.
(二) 习题答案
1. C.
At the end of Day 1, the balance in the investor's account would be
$20
At the beginning of Day 2, the investor would be required to
deposit $30
At the end of Day 2, the balance in the investor's account would be
$120
At the end of Day 3, the balance in the investor's account would be
$100
2. B.
Eurodollar futures contracts do not permit actual delivery of a
Eurodollar time deposit; the contracts must be settled in cash.
3. C.
The initial margin required was $4.5 × 10 contracts or $45. A loss
of $2.5 per contract on Day 1 would deplete the margin to $20 is
below the required maintenance margin of $25, the investor must
deposit enough to bring the balance back to $45. The investor must
deposit $25 on Day 2.
4. C.
Margin in the stock market involves a loan used to buy securities,
whereas margin in the futures market is a down payment or a
performance bond.
5. A.
Total margin = 2 × 3000 = $6000. Total price change = 179.75 173.00 = $6.75 per ton. $6.75 per ton × 200 tons = $1350. Since this
is a short position, the margin account will decrease by $1350.
$6000- $1350= $4650.
6. C.
The equity value falls below the initial margin, but since the
equity value does not fell below the maintenance level, a variation
margin is not called
7. C.
The initial margin requirement is ( $3.00 × 5000 × 0.10) =
$1500.00. The maintenance margin level is ( $1500 × 0.65 ) = $975.00.
The difference between the initial and maintenance margin amounts is
( $1500.00 - $975.00) = $525.00. When the market value of the
commodity decreases, the daily settlement process reduces the amount
in the trader's margin account. When the initial level of margin
declines by $525.00 Wilkins will receive a maintenance margin call.
This will occur when the price per bushel declines by: ( $525.00/5000)
= 0.105, or by $0.1050.
8. A.
The short trader loses equity in the account when the price of
wheat appreciates. $2000 - $1500= $500. 5000×(P-1.89) =500. P= $1.99.
9. B.
The nature of an index future realistically prohibits settlement in
the underlying commodity. For example, the Standard and Poor's 500
stock index would require settlement in 500 different common stocks,
in the exact proportion of the total value as exists in the index at
expiration of the future. Agriculture, interest rate, and currency
futures all involve deliverable commodities.
10. B.
If the margin balance falls below a specified level ( the
maintenance margin) , additional capital (the variation margin) must
be deposited in the account. Initial margin is the capital that must
be in the trader's account before the initiation of the margin trade.
Marking to market is when any loss for the day is deducted from the
trader's account, and any gains are added to the account.
11. C.
Index futures settle in cash. The mechanics are simple, your
account is marked to market at the settlement price on the last day
of trading. Your "cash settlement" is already in your account when
it's marked to market; whether you have gains of losses, they have
been accumulating daily through margin adjustment over the life of
the contract.
12. B.
The purpose of hedging is to guard against price changes that could
adversely affect operating profit. However, in protecting against
profit reduction a hedge also sacrifices higher profit if the
underlying asset increases in value, since the gain on the long
position will be offset by the loss on the short position.
Speculators would take long positions if the underlying commodity
value were expected to increase. Long (short) positions gain if the
underlying asset value increases (decreases).
13. C.
A trader that sells a commodity future, on a commodity that trader
owns long, is engaging in a short hedge. An example would be a firm
that owns the asset but wants to reduce their risk by selling the
asset now at the current price. It is a hedge because if the
underlying commodity's market value declines, the short position
value will increase.
14. C.
A good way to deal with futures margins and mark to market
calculations is to first calculate the movement in the contract value
for a one-unit change in price-a dollar, a percent, a basis point,
whatever fits the contract. One cent seems to fit here. A one-cent
change in the price of silver means a $50 change on 5000 ounces. To
lose more than $2025 - $1500 = $525, $0.11 will do it since 11 ×50
is 550.
15. A.
When the losses incurred leave an equity that is less than the
maintenance margin of $2500, the trader will receive a margin call.
16. C.
When using delivery as a method to close a futures contract,
completion is usually achieved through the physical delivery of a
particular good or by cash settlement.
17. A.
The sale of the futures contract will involve matching seller with
buyer and producing one contract of volume For Joe, this is a new
position while for Billy this was a reversing trade. Therefore the
open interest is unchanged.
18. C.
The clearinghouse is not a U. S. government agency nor is it
insured by the U S government. As a result, its safety is reliant
upon its net zero futures position, its credit lines, and high
capitalization.
19. B.
By definition, a futures price rise results in a LOSS for a SHORT
futures position.
20. B.
Ms Contrary bought contracts with a different expiration from those
she had previously sold. In order to offset, the contracts bought and
sold must be identical.
21. C.
Forwards and futures are similar and serve similar needs. Both are
considered types of financial derivatives in that payoffs depend on
another financial instrument or asset. The primary difference is that
forwards are designed for the needs of the particular parties
entering the contract, where futures are standardized contracts.
22. B.
This is the primary role of the clearinghouse. By providing
liquidity, the clearinghouse may also help lower transaction eosts,
but B is the best answer.
23. B.
The price is quoted as (one minus the annualized discount) in
percent. Remember that the gains and losses on T-bill and Eurodollar
futures are $25 per basis point of the price quote. The price is up
13 ticks and 13 × $25 is a gain of $325 for a long position.
24. C.
The process is called marking to market. Variation margin is the
funds that must be deposited when marking to market draws the margin
balance below the maintenance margin.
25. B.
This describes the situation when the equilibrium price is either
above or below the prior day's settle price by more than the
permitted (limit) daily price move. We do not know whether it is
limit up or limit down.
26. C.
When insufficient funds exist to satisfy margin requirements, a
variation margin must be posted.
27. C.
If an account rises to or exceeds the maintenance margin, no
payment needs to be made, and the trader has the option to remove the
excess funds from the account. Only if an account falls below the
maintenance margin does variation margin need to be paid to bring the
level of the account back up to the level of the initial margin.
28. C.
Traders trade with other exchange members on the exchange floor.
Brokers execute orders for those off the exchange.
29. A.
There is no bid/ask spread in futures trades; the price for the
trade is determined on the floor of the exchange and is the single
price the long will pay the short for the asset at the termination of
the contract.
30. C.
Each trade is made at the then current equilibrium price,
determined by open outcry on the floor of the exchange, and is
reported as it is executed. The long is obligated to buy, and the
short is obligated to sell, the specified quantity of the underlying
asset.
31. C.
(1.0234- 1.0180) × 125000 × 3 = $2025. The contracts were sold
and the price declined, so the adjustment is an addition to the
account margin.
32. A.
4 × 300 × (381 -380.20) = $960.
33. B.
320 + 100000 (0.08201 -0.08196) = $325.
34. C.
When a futures trader receives a margin call, he/she must deposit
variation margin to bring the account up to the initial margin value.
35. C.
Delivery can also occur through cash settlement of gains and losses.
The other statements are true. Approximately one percent of futures
transactions are closed through actual delivery or cash settlement.
36. B.
Futures accounts are marked to market daily based on the new
settlement price, which can result in either an addition to or
subtraction from the previous margin balance. Under extraordinary
circumstances (volatility) the mark to market can be required more
frequently. Once the margin is marked to market, the contract is
effectively a futures contract at the new settlement price.
37. B.
When the holder of a long position negotiates directly with the
holder of the short position to accept delivery of the underlying
commodity to close out both positions, this is called an exchange for
physicals. (This is a private transaction that occurs ex-pit and is
one exception to the federal law that all trades take place on the
exchange floor. ) Note that the exchange for physicals differs from
an offsetting trade in which no delivery takes places, and also
differs from delivery in which the commodity is simply delivered as a
result of the futures expiration with no secondary agreement. Most
futures positions are settled by an offsetting trade.
38. C.
The actions described in "A" and "B", all represents hedgers
seeking to reduce the risk of future purchases or sales.
39. A.
The standardization of futures contracts promotes liquidity because
all the participants in the market know exactly what is being offered
for sale, and they know the terms of the transactions.
40. B.
The clearinghouse does not guarantee the physical delivery of the
underlying asset. Indeed, most futures contracts do not have a
physical delivery, but are reversed.
41. C.
Open interest is the number of contracts currently in existence.
Speculators take risk for return. You must bring the margin account
up to the initial level by the next day's opening.
42. A.
The margin adjustments are made based on the settlement price,
which is calculated as the average trade price over a specific
closing period at the end of the trading day. The length of the
closing period is set by the exchange.
43. C.
To safeguard the clearinghouse, commodity exchanges require traders
to settle their accounts on a daily basis. Marking to market is when
any loss for the day is deducted from the trader's account, and any
gains are added to the account.
44. B.
Physical deliveries and cash settlements combined represent less
than one percent of all settlements.
An exchange for physicals differs from a delivery in that:
The traders actually exchange the goods.
The contract is not closed on the floor of the exchange.
The two traders privately negotiate the terms of the transaction.
70. Option Markets and Contracts(期权市场和期权合约)
(一)强化习题
1. An option sold for $10 is currently in-the-money $5. If the
underlying is priced at $80, which of the following best describes
that option?
A. Put option with an exercise price of $85.
B. Put option with an exercise price of $70.
C. Call option with an exercise price of $75.
2. An investor pays $2 for a call option with an exercise price of
$95, when the underlying stock price is $95. If the stock price is
now $96, the intrinsic value of the call option would be :
A. -$1
B. $0
C. $1
3. Prior to expiration, the maximum value of an Americana call
option and an American put option, respectively, is closest to the:
American put option American call option
①A. Exercise price Exercise price
②B. Exercise price Underlying price
③C. Underlying price Exercise price
A. ① B. ② C. ③
4. Consider a put option on Deter, Inc. , with an exercise price of
$45. The current stock price of Deter is $52. What is the intrinsic
value of the put option, and is the put option in-the-money, at-themoney, or out-of-the-money?
A. $0, Out-of-the-money.
B. $7, At-the-money.
C. $7, Out-of-the-money.
5. Which of the following statements regarding the seller of a call
and a put is TRUE? A call writer:
A. expects the price of the underlying stock to increase above the
strike price and a put Writer expects the price of the underlying
stock to decrease below the strike price.
B. and a put writer both expect the price of the underlying stock
to decrease below the strike price.
C. expects the price of the underlying stock to decrease below the
strike price and a put writer expects the price of the underlying
stock to increase above the strike price.
6. What is the most likely effect of an increase in volatility on
the price of a:
Call option
Put option
①A. Decrease
Increase
②B. Decrease
Decrease
③C. Increase
Increase
A. ① B. ② C. ③
7. When the underlying stock price is $95, an investor pays $2 for
a call option with an exercise price of $95. if the stock price moves
to $96, the intrinsic value of the call option would be :
A. -$1.
B. $0.
C. $1.
8. Do options and futures, respectively, most directly reveal the
prices or the volatility of their underlying assets?
Options
Futures
①A. Prices
Prices
②B. Volatility
Volatility
③C. Volatility
Prices
A. ① B. ② C. ③
9. Holding all other factors constant, an increase in yield
volatility will cause the price of a (n) :
A. callable bond to increase.
B. puttable bond to incnease.
C. Embedded call option to decrease.
10. A European stock index call option has a strike price of $116.0
and a time to expiration 5 years. Given a risk-free rate of 4% , if
the underlying index is trading at $1200 and has a multiplier of 1,
then the lower bound for the option price is or the option price is
closest to:
A. $51.32
B. $28.29
C. $4O.00
11. An option's intrinsic value is equal to the amount the option
is:
A. out of the money, and the time value is the market value minus
the intrinsic value.
B. in the money, and the time value is the intrinsic value minus
the market value.
C. in the money, and the time value is the market value minus the
intrinsic value.
12. ABEX Corporation common stock is selling for $50.00 per share.
Both an American call option and a European call option are available
on ABEX common, and each have identical strike prices and expiration
dates. Which of the following statements concerning these two options
is TRUE ?
A. Because the American and European options have identical terms
and are written against the same common stock, they will have
identical option premiums.
B. The greater flexibility allowed in exercising the American
option will normally result in a higher market value relative to an
otherwise identical European option.
C. The American option will have a higher option premium, because
the American security markets are larger than the European markets.
13. An American option is more valuable than a European option on
the same dividend paying stock with the same terms because the:
A. European option contract is not adjusted for stock splits and
stock dividends and does not conform to the Black-Scholes model and
is often mispriced.
B. American option can be exercised from date of purchase until
expiration, but the European option can be exercised only at
expiration.
C. American options are traded on U. S. exchanges, which offer much
more volume and liquidity.
14. If a stock is selling for $25, the exercise price of a put
option on that stock is $20, and the time to expiration of the option
is 90 days, the minimum and maximum prices for the put today are :
A. $5 and $25.
B. $0 and $20.
C. $5 and $20.
15. An options investor purchases one stock put option on General
Motor's stock. The put has the following characteristics :
Type of option: put option
Underlying asset: 100 shares of General Motor's stock
Exercise price : $75 per share
Premium: $1.81 per share
Expiration date : November
By taking a LONG position in this put option, the investor has:
A. purchased the right to decide whether to sell 100 shares of
General Motor's stock and receive $181 during the specified time
period (the expiration date in November)
B. purchased the right to decide whether to purchase 100 shares Of
General Motor's stock and receive $181 during the specified time
period (the expiration date in November)
C. none of the above
16. Option investor D sells (writes, takes a SHORT position in) one
of the following call options:
Type of option: call option
Underlying asset: 100 shares of Disney stock
Exercise price: $40 per share
Premium : $2.25 per share
Expiration date : January
The current market price of Disney stock is $39.02 per share.
Investor D already owns 500 shares of Disney stock. Which of the
following describes the amount of initial margin required for this
transaction?
A. Since the call option is "in the money" investor D is not
required to deposit initial margin.
B. Since investor D owns at least 100 shares of Disney stock, he
must deposit initial margin in the amount of 100% of the option
premium.
C. Since investor D owns at least 100 shares of Disney stock, no
additional margin is required.
17. Roger Hickstead owns 100 shares of Cole Corporation stock with
a current market value of $45 per share. Consensus stock price
estimates from the leading industry analysts predict the price of
Cole will fall to $35 per share in the next five months. What type of
derivative strategy should Hiekstead employ if he is not willing to
lose more than $10?
A. Buy a put with a strike price of $37 and a premium of $2.
B. Buy a covered call with a strike price of $37 and a premium of
$2.
C. Buy an uncovered call with a strike price of $37 and a premium
of $2.
18. An investor who bought a floating-rate security and wishes to
establish a minimum periodic cash flow on his investment could:
A. buy an interest-rate floor.
B. sell an interest-rate cap.
C. buy an interest-rate cap.
19. Don Weaver purchased a call option on Dominic InC. with an
exercise price of $20. Weaver paid $3.50 for the option, which is an
American option that expires in 90 days. Dominic does not pay any
dividend, and the stock is currently trading at $22 per share. The
moneyness and intrinsic value of this option could be best described
as:
Moneyness
Intrinsic Value
①A. in-the-money
$1.50
②B. in-the-money
$2.00
③C. out-of-the-money
$1.50
A. ① B. ② C. ③
20. There are two different options available with ITM Corporation
common stock as the underlying asset. They each have the same
maturity date, a strike price of $40.00, and are identical in all
other ways except, one is a European call, and the other is an
American call. ITM stock has a market value of $43.75. The American
call option is selling for $4.90. For the European call, which of the
following option premiums is most likely?
A. $4.90.
B. $5.25.
C. $4.25.
21. A short position in a forward rate agreement is equivalent to:
A. writing an interest rate put and buying an interest rate call.
B. buying an interest rate put and an interest rate call.
C. writing an interest rate call and buying an interest rate put.
22. Buying an interest-rate cap and selling an interest-rate floor
is equivalent to:
A. buying a series of interest-rate calls and selling a series of
interest-rate puts.
B. buying a series of interest-rate puts and selling a series of
interest rate calls.
C. buying a series of interest-rate puts and calls.
23. Which of the following descriptions of how option payoffs are
determined is most accurate?
A. The long position in an interest rate call option receives cash
at expiration equal to Max[0, (reference rate-strike rate) ] ×
notional principal amount.
B. The payoff on a stock index option is the difference between the
index level at expiration and the exercise price.
C. Payoffs on futures options can be determined without knowing the
spot price of the underlying commodity.
24. The value of an interest-rate call option at expiration is zero
or the:
A. present value of, the market rate minus the exercise rate,
adjusted for the period of the rate, times the principal amount.
B. market rate minus the exercise rate, adjusted for the period of
the rate, times the principal amount.
C. present value of, the exercise rate minus the market rate,
adjusted for the period of the rate, times the principal amount.
25. The minimum value for a European call option is:
A. main [0, S-X/(1 +r)T.
T
B. max [0, (S-X) /(1 +r) .
C. max [0, S-X/(1 +r)T.
26. Consider a call option expiring in 110 days on a non-dividendpaying stock trading at 27 when the risk-free rate is 6%. The lower
bound for a call option with an exercise price of 25 is:
A. $2.00.
B. $2.44.
C. $1.97.
27. The lower bound on European call option prices can be adjusted
for cash flows of the underlying asset by :
A. adding the present value of the expected dividend payments to
the current asset price.
B. subtracting the present value of the expected dividend payments
from the exercise price.
C. subtracting the present value of the expected dividend payments
from the current asset price.
28. For two American options that differ only in time to expiration,
strongest statement we can make is that :
A. the longer-term option must be worth more than the shorter-term
option.
B. the longer-term option must be worth less than the shorter-term
option.
C. the longer-term option must be worth at least as much as the
shorter-term option.
29. Consider the following tour options on the same underlying
instrument:
Option 1: September call, exercise price = $55.
Option 2: September call, exercise price = $60.
Option 3: December put, exercise price = $75.
Option 4: December put, exercise price = $80.
What is most likely the relationship among the values of these
options?
September calls
December puts
①A. Option 1 ＞ Option 2
Option 3 ＞ Option 4
②B. Option 1 ＞ Option 2
Option 4 ＞ Option 3
③C. Option 2 ＞ Option 1
Option 4 ＞ Option 3
A. ① B. ② C. ③
30. Which of the following statements about put and call options is
FALSE?
A. The price of the option is less volatile than the price of the
underlying stock.
B. Option prices are generally higher the longer the time till the
option expires.
C. For put options, the higher the strike price relative to the
stock's underlying price, the more the put is worth.
31. Which of the following statements regarding an option prior to
expiration is TRUE? The maximum value of:
A. a European put is less than the maximum value of an American put.
B. an American call is less than the maximum value of a European
call.
C. a European put is equal to the maximum value of an American put.
32. Consider a call option expiring in 60 days on a non-dividendpaying stock trading at 53 when the risk-free rate is 5%. The lower
bound for a call option with an exercise price of 50 is:
A. $3.00.
B. $3.40.
C. $3.55.
33. Prior to expiration, an American put option on a stock:
A. is bounded by S-X/(1 +RFR)T B. will sell for its intrinsic value.
C. will never sell for less than its intrinsic value.
34. The lower bound for an American call option is:
A. Max (0, S-X).
B. Max [0, S-X/(1 +RFR)T]
C. Max [0, X/(1 +RFR)T-S].
35. The price of a stock is $44 per share, and the October put with
an exercise price of $45 is selling for $3. The intrinsic value of
the option is :
A. $1.00.
B. $2.00.
C. $3.00.
36. The payoff on an interest-rate option:
A. comes some period after option expiration.
B. is periodic, typically every 90 days.
C. is greater than the "strike" rate.
37. To account for positive cash flows from the underlying asset,
we need to adjust the put-call parity formula by:
A. adding the future value of the cash flows to S.
B. adding the future value of the cash flows to X.
C. subtracting the present value of the cash flows from S.
38. Which of the following statements about moneyness is FALSE?
When:
A. S - X ＞ 0, a call option is in-the-money.
B. S -X = 0, a call option is at-the-money.
C. S - X ＞ 0, a put option is in-the-money.
39. All of the following statements regarding interest-rate options
are true EXCEPT:
A. they are based on a fixed income security and can hedge interest
rate risk.
B. they are based on a specific interest rate rather than a bond.
C. call option values move in the same direction as interest rates.
40. Which of the following statements about the potential profits
and losses from selling a call is most accurate?
A. Losses are theoretically unlimited.
B. Profits are theoretically unlimited.
C. Losses are limited to the initial premium the seller receives.
41. There is a call option on a stock that is currently selling for
$25 and it is in-the-money by $8. Find the call option's strike price:
A. $17.
B. $25.
C. $33.
42. A put with a strike price of $75 sells for $10. Which of the
following statements is FALSE? The greatest :
A. profit the writer of the put option can make is $10.
B. profit the buyer of a put option can make is $65.
C. loss the writer of a put option can make is $75.
43. Given the following data regarding Printer, Inc. 's call options,
which of the following statements is FALSE?
Stock Price
Expiration
Strike
Option Prem.
(Last)
50
June
45
6
50
June
50
2
50
June
55
0.50
A. The June $55.00 call is an in-the-money option.
B. The June $50. O0 call is an at-the-money option.
C. The intrinsic value of the June $45.00 call is $5.00.
(二) 习题答案
1. A.
A call option with an exercise price of $75 or a put option with an
exercise price of $85 will be currently in-the-money $5.
2. C.
The intrinsic value is $1 ; a stock priced at $96 can be purchased
for $95.
3. B.
The maximum value of a call option is the underlying price; it
makes no sense to pay more for the right to buy the underlying than
the value of the underlying itself, and the maximum value of an
American put is the exercise price because the best outcome would be
if the stock fell to zero, the holder could capture the value of the
exercise price.
4. A.
The option has an intrinsic value of $O, because the stock price is
above the exercise price. Put value is Max (0, X- S). Equivalently,
the option is out-of-the-money.
5. C.
This question is really asking about "moneyness," ( which is
usually thought of from the option buyer's perspective) from the
option writer's ( or seller's) perspective. In general, the writer
prefers that the buyer not exercise, because the writer's gain is
limited to the premium while the potential loss may be unlimited ( in
the case of a call). Thus, the moneyness for the seller is opposite
that of the buyer.
6. C.
Higher volatility increases call and put option prices because it
increases both the possible upside and downside values of the
underlying.
7. C.
The intrinsic value is $1 ; a stock priced at $96 can be purchased
for $95.
8. C.
The volatility of the underlying asset is critical to the value of
an option. Options reveal more about volatility than about spot
prices. Futures, forwards, and swaps are more directly related to
price discovery.
9. B.
Increasing yield volatility increases the value of both put options
and call options, which increases the value of a putable bond but
decreases the value of a callable bond.
10. A.
The lower bound on a European call is either zero or the underlying
price minus the present value of the exercise price, whichever is
greater.
$1200 - ( $1160/1.040.25) = $51.32
11. C.
Intrinsic value is the amount the option is in the money. In effect
it is the value that would be realized if the option were at
expiration. Prior to expiration, the option's market value will
normally exceed its intrinsic value. The difference between market
value and intrinsic value is called time value.
12. B.
Trading in European options is considerably less than trading in
American options, because demand for them is much lower. This is due
to their relative inflexibility regarding when they can be exercised.
The greater exercising flexibility of American options gives them
increased value to traders, which normally results in a greater
market value relative to an otherwise identical European option.
13. B.
Investors may be willing to pay more for the right to exercise an
American option prior to its expiration.
14. B.
You know that the minimum value is zero, so this narrows the answer
down to two choices. You also know that the maximum put value is the
exercise price for American puts, and the discounted value of the
exercise price for European puts, which will be less than the
exercise price.
15. C.
A Long put gives the option buyer the right to decide to sell the
underlying instrument. The exercise price is 1 × 100 × 75 = 7500.
16. C.
If the owner (Long) of the call options exercises, investor D will
be required to sell 100 shares, investor D already owns sufficient
shares to deliver. As a result, his position is "covered," and no
additional margin is required.
17. A.
As the stock price drops, increases in the put option value would
offset the losses on the stock. If the stock price falls to $37 or
below, the stock can be sold at a loss of $37- $45 = - $8. Since
Hickstead bought the put for $2, the total loss is - $10 (the max he
is willing to lose).
18. A.
The buyer of a floor will receive a payment when the floating rate
is below the floor rate, effectively establishing a minimum rate on
the floating rate security.
19. B.
The option is in-the-money because it could be exercised now for a
profit. The potential payoff at exercise is the intrinsic value,
which would be calculated for a call option as the market price less
the strike price, or $22 - 20 = $2.00. Note that the premium paid for
the option has no effect on the moneyness or intrinsic value.
20. C.
Both the American and European calls have a strike price of $40.00.
Each call is therefore in-the -money by $3.75 ( $43.75 - $40.00).
Since they are identical in all ways except when they can be
exercised, and since European calls are less flexible than American,
their market value, option premium, will most likely be lower. The
lower option premium will allow for a higher return on the European
option relative to the American, assuming both are held to expiration.
This higher return is compensation for the reduced flexibility of the
option terms.
21. C.
A short position in a forward rate agreement is an obligation to
make a hypothetical loan at the contract rate and will be profitable
when the forward rate falls. An equivalent position using interest
rate options is to buy a put and write a call.
22. A.
A cap is equivalent to a series of (long interest-rate calls and
selling a floor is equivalent to selling a series of interest-rate
puts.
23. C.
When the holder exercises a futures option, he receives an
underlying futures position. The cash payoff is the value the holder
gains when that position is marked to market. Thus, the payoff is the
difference between the exercise price and the futures contract price.
Although it certainly influences the futures price, the spot price of
the underlying commodity does not enter into the calculation of the
payoff on the option.
The long position in an interest rate call option receives cash if
the reference rate is greater than the strike rate, but does not
receive it at expiration. The term of the reference rate ( for
example, 90-day LIBOR) determines the length of time after expiration
when the cash changes hands. Options that pay at expiration pay the
present value of the amount described. Determining the payoff on a
stock index option requires the index level, the exercise price, and
the contract multiplier. The strike price is another name for the
exercise price.
24. A.
An interest rate call pays zero or the market rate at expiration
minus the exercise rate. Since the payment is made at a date after
expiration by the period of the reference rate, the value at
expiration is the present value of this difference times the
principal value.
25. C.
The minimum value of a European call option is max [0, S - X/(1 +
r)T.
26. B.
27 -25/(1.06)
110/365
=2.435.
27. C.
The correct adjustment is to subtract the present value of the
expected dividend payments from the current asset price.
28. C.
While longer term options generally are worth more, for far in- or
out-of-the-money options, the values could be equal.
29. B.
For options that differ only by exercise price, a call with a lower
exercise price typically has more value than a call with a higher
exercise price because the underlying instrument can be purchased at
a lower price. A put with a higher exercise price typically has more
value than a put with a lower exercise price because the underlying
instrument can be sold for a higher price.
30. A.
Option prices are more volatile than the price of the underlying
stock. The other statements are true. Options have time value which
means price are higher the longer the time until the option expires;
and a higher strike price increases the value of a put option.
31. A.
The maximum value of a European put is X/( 1 + r)T and the maximum
value of an American put is X.
32. B.
53 - 50/ (1.05 )
60/365
= 3.40.
33. C.
At any time t, an American put will never sell below intrinsic
value, but may sell for more than that. The lower bound is Max [ 0, X
-St ].
34. C.
The lower bound for an American call ranges from zero to the
prevailing stock price less the present value of the exercise price
discounted at the risk-free rate.
35. A.
The intrinsic value of a put option at expiration will be the
greater of ( X - S) or 0. Put Value =max[0, (X-S)], or max [0, (4544)] =1.
36. A.
There is only one payment and it comes after option expiration by
the term of the underlying rare.
37. C.
If the underlying asset used to establish the put-call parity
relationship generates a cash flow prior to expiration, the assets
value must be reduced by the present value of the cash flow
discounted at the risk-free rate.
38. C.
A put option is out-of-the-money when S ＞ X and in-the-money when
S ＜ X.
39. A.
Treasury bond or bill options are options on fixed income
securities. Interest rate options are based on a specific reference
rate and interest rate calls have positive payoffs when the reference
rate is above the rate specified in the contract.
40. A.
The following table provides the potential payoffs from puts and
calls.
Buyer/Holder
Seller/Writer
Potential Gain
Call
Unlimited
Put Strike P-Premium
41. A.
Potential
Loss
Premium
Premium
Potential Gain Potential Loss
Premium
Unlimited
Premium
Strike P-Premium
When the stock's price(S) -the strike price (X) is positive, a call
option is in-the-money.
25-X=8 so X=17.
42. C.
The greatest loss the put writer can have is the strike price minus
the premium received = $65.
43. A.
The June $55.00 call option is out-of-the money. It gives the
purchaser the right to buy Printer, Inc: for $55.00 when they would
only have to pay $50.00 in the market.
71. Swap Markets and Contracts(互换市场和互换合约)
(一)强化习题
1. A plain vanilla interest rate swap is a contract where one party
pays a:
A. fixed interest rate and the counterparty pays a floating rate in
a different currency.
B. fixed interest rate and the counterparty pays a fixed rate, both
in the same currency.
C. fixed interest rate and the counterparty pays a floating rate,
both in the same currency.
2. Consider a U. S. commercial bank that takes in one-year
certificates of deposit(CDs) in its Japan branch, denominated in
Japanese yen, to fund three-year, fixed-rate loans the bank is making
in the U. S. denominated in U. S. dollars. Why would this bank wish
to enter into a currency swap? The bank faces the risk that the
Japanese yen:
A. increases in value against the U. S. dollar and the risk that
interest rates decrease in Japan.
B. decreases in value against the U. S. dollar and the risk that
interest rates increase in Japan.
C. increases in value against the U. S. dollar and the risk that
interest rates increase in Japan.
3. TDK commercial bank makes an adjustable rate mortgage for a big
construction customer. Which of the following would be an appropriate
position for the bank to hedge its risk with this loan? TDK should
pay:
A. fixed to a currency swap counterparty and receive variable.
B. variable to an interest rate swap counterparty and receive fixed.
C. variable to a currency swap counterparty and receive fixed.
4. Which of the following statements describing options is false?
A. A put option gives its holder the right to sell an asset for a
specified price on or before the option's expiration date.
B. A call option will be exercised only if the market value of the
underlying asset is more than the exercise price.
C. A put option's profit increases when the value of the underlying
asset increases.
5. XYZ company has entered into a "plain-vanilla" interest rate
swap on $1000000 notional principal. XYZ company pays a fixed rate of
8 percent on payments that occur at 90-day intervals. Six payments
remain with the next one due in exactly 90 days. On the other side of
the swap, XYZ company receives payments based on the LIBOR rate.
Describe the transaction between XYZ company and the dealer at the
end of the fourth period if the appropriate LIBOR rate is 9.2 percent.
A. XYZ company pays dealer $3000.
B. Dealer receives $20000.
C. Dealer pays XYZ company $3000.
6. Consider a commercial bank that is about to make a large
variable-rate loan. Which of the following would be an appropriate
position for the bank to hedge its risk with this loan? Pay:
A. variable to a currency swap counterparty and receive fixed.
B. variable to an interest rate swap counterparty and receive fixed.
C. fixed to an interest rate swap counterparty and receive variable.
7. Two parties enter a three-year, plain-vanilla interest-rate swap
agreement to exchange the LIBOR rate for a 10 percent fixed rate on
$10 million. LIBOR is 11 percent now, 12 percent at the end of the
first year, and 9 percent at the end of the second year. If payments
are in arrears, which of the following characterizes the net cash
flow, to be received by the fixed-rate payer?
A. $100000 at the end of year 2.
B. $100000 at the end of year 3.
C. $200000 at the end of year 2.
8. Assume that you are analyzing a plain vanilla interest rate swap
with the following characteristics :
Counterparty X Counterparty Y
pay fixed rate 6% pay floating rate LIBOR + 0.5%
receive floating rate LIBOR +0.5% receive fixed rate 6%
Swap tenor: 10 years
National principal: $1000000
LIBOR : 4.75%
Which of the following is the first floating rate payment made by
Counterparty Y?
A. $60000.
B. $47500.
C. $52500.
9. Which of the following statements is FALSE?
A. In a currency swap, the notional principal is actually swapped
twice, once at the beginning of the swap and again at the termination
of the swap.
B. The time frame of a swap is called its tenor.
C. In a currency swap, only net interest payments are made.
10. Consider a quarterly-pay currency swap where Party A pays
London Interbank Offered Rate (LIBOR) on $1000000 and Party B pays 4
percent on 900000 euros. Current LIBOR is 3 percent and at the end of
90 days it is 4 percent. Which of the following statements regarding
the first settlement date is TRUE?
A. Party A must make a payment of $10000.
B. The payments net to zero and no payment is made.
C. Party A must make a payment of $7500.
11. Which of the following is a reason to use the swaps market
rather than the futures market? To :
A. reduce the credit risk involved with the contract.
B. increase the liquidity of the contract.
C. maintain the firm's privacy.
12. Jan Jurgen, CFA charterholder, recently accepted a position in
the Treasury area of a conservatively managed commercial bank. Jurgen
intends to suggest the use of plain-vanilla interest rate swaps at
today's Asset & Liability Management Committee meeting. Jurgen is
least correct to argue that the use of interest rate swaps will:
A. reduce the exposure from the mismatch between floating rate
assets and fixed rate liabilities.
B. create arbitrage profits by exploiting market inefficiencies.
C. allow more flexibility in packaging cash flows.
13. Party A enters into a plain vanilla 1-year interest rate swap
agreement with Bank B in which he will make fixed-rate payments in
exchange for receiving floating-rate payments based on LIBOR plus 100
basis points. Assume that payments are made quarterly in arrears
based on a 360-day year. The fixed rate on the swap is 6.5 percent.
The current interest rates on 90, 180, 270, and 360-day LIBOR are 5.2
percent, 5.5 percent, 5.8 percent, and 6.0 percent, respectively. If
the notional principal is $100 million, what will Party A's net cash
flow at the end of the first quarter equal?
A. - $675000.
B. - $75000.
C. + $75000.
14. 123, Inc has entered into a "plain-vanilla" interest rate swap
on $10000000 notional principal. 123 company receives a fixed rate of
6.5 percent on payments that occur at monthly intervals. Platteville
Investments, a swap broker, negotiates with another firm, PPS, to
take the pay-fixed side of the swap. The floating rate payment is
based on LIBOR ( currently at 4.8 percent). At the time of the next
payment (due in exactly one month), 123, Inc will:
A. receive net payments of $42500.
B. receive net payments of $14167.
C. pay the dealer net payments of $14167.
15. DWR Services, Ltd. , arranges a plain vanilla interest rate
swap between RWDY Enterprises ( pays fixed) and RED, InC. ( receives
fixed). The swap has a notional value of $25000000 and 270 days
between payments. LIBOR is currently at 7.0%. If at the time of the
next payment (due in exactly 270 days) , RWDY receives net payments
of $93750, the swap fixed rate is closest to:
A. 6.625%.
B. 6.500%.
C. 7.500%.
16. Which of the following statements about notional principal in
plain vanilla interest rate swaps is least accurate? Notional
principal:
A. is not exchanged by the counterparties.
B. is determined by the counterparties.
C. is used to calculate the fixed rate interest payment ; the
swap's market value is used to calculate the floating rate payment.
17. Which of the following statements regarding a plain vanilla
swap is FALSE?
A. The notional principal amounts are exchanged at contract
initiation and at the termination of the swap.
B. Only a net payment is made on each settlement date.
C. If interest rates decrease, the swap has a negative value to the
fixed rate payer.
18. Consider a 1-year quarterly-pay $1000000 equity swap based on a
fixed rate and an index return. The current fixed rate is 3.0 percent
and the index is at 840. Below are the index level at each of the
four settlement dates on the swap.
Q1
Q2
Q3
Q4
Index
881
850
892.5
900
At the first settlement date, the equity-return payer in the swap
will pay:
A. $4638.
B. $56310.
C. $41310.
19. Why are payments NOT usually netted out in a currency swap?
A. There are no payments in a currency swap except at initiation
and maturity.
B. The notional principal is not swapped at initiation.
C. The payments are denominated in two different currencies.
20. Consider the following borrowing rates for Company Z and
Company W
Firm German mark rate French franc rate
Company Z 5.25% 6.5%
Company W 4.75% 7%
Given the borrowing rates above, Companies Z and W wish to enter
into a plain vanilla currency swap. Which company should borrow
French francs as a part of the swap?
A. Company Z because it can borrow francs at a lower interest rate.
B. Company Z because it can borrow marks at a lower interest rate.
C. Company W because it can borrow francs at a lower interest rate.
21. A contract in which one party pays a fixed rate of interest on
a notional amount in return for the return on a single stock, paid
quarterly for four quarters, is a(n) :
A. plain vanilla swap.
B. equity swap.
C. returns swap.
22. When one party pays a fixed rate of interest in an equity swap,
which of the following is FALSE?
A. Unlike other swaps, in an equity swap the one-quarter-ahead
payment is not known at the end of the previous quarter.
B. The equity-return payer will receive the fixed-rate minus the
equity return.
C. The fixed-rate receiver will never get more than the fixed rate.
23. Which of the following statements about a currency swap is
least accurate?
A. Most currency swaps are done to exploit market inefficiencies.
B. Notional principal is exchanged at the termination of the swap
and the initiation of the swap.
C. The periodic interest payments are exchanged in full each period.
24. No Errors Printing has entered into a "plain-vanilla" interest
rate swap on $1000000 notional principal. No Errors receives a fixed
rate of 5.5 percent on payments that occur at quarterly intervals.
Platteville Investments, a swap broker, negotiates with another firm,
Perfect Bid, to take the pay-fixed side of the swap. The floating
rate payment is based on LIBOR (currently at 6.0 percent). Because of
the current interest rate environment, No Errors expects to pay a net
amount at the next settlement date and has created a reserve to cover
the cash outlay. At the time of the next payment ( due in exactly one
quarter), the reserve balance is $1000. To fulfill its obligations
under the swap, No Errors will need approximately how much additional
cash?
A. $250.
B. $0.
C. $667.
25. Which transaction would least likely be classified as an
interest rate swap?
A. Pay USD fixed, receive U. S. LIBOR.
B. Receive AUD fixed, pay NZD floating.
C. Receive U. S. fixed, pay U.S. commercial paper.
26. Company X can borrow U.S. dollars at a rate of 7% , and can
borrow Japanese yen at 2%. Company Z faces a dollar borrowing rate of
9% and a yen rate of 2%. The commercial needs of Company X are to
borrow yen, while Company Z desires to raise dollars. Is it possible
for these two companies to enter a currency swap arrangement that
will reduce their borrowing costs relative to their costs if no swap
were used?
A. Yes, X should borrow dollars, Z should borrow yen, and the
companies should enter a currency swap.
B. No, Bout companies do not have relative advantages that can be
exploited.
C. Yes, X should borrow yen, Z should borrow dollars, and the
companies should enter a currency swap.
27. When a call option on a future is exercised, the buyer receives:
A. a short position in the underlying future.
B. an option to purchase the underlying future.
C. a long position in the underlying future and a cash payment.
28. Which of the following statements about swap agreements is
FALSE?
A. They are standardized agreements, similar to futures.
B. Interest rate and currency are common types of swaps.
C. They allow for the exchange of different sets of future cash
flows.
29. Which of the following statements regarding a fixed-for-fixed
currency swap of euros for British pounds is FALSE?
A. The notional principal amounts, adjusted for exchange rate
changes, are exchanged at the termination of the swap.
B. One party makes certain payments in Euros and one party makes
certain payments in British pounds.
C. The periodic payments are not netted, both payments are always
made.
30. All of the following are ways to exit a swap contract EXCEPT:
A. entering an offsetting swap with the original counterparty.
B. selling a swaption.
C. making a cash payment to the original counterparty.
31. A U. S. bank enters into a plain vanilla currency swap with a
notional principal of US $100m (￡ 67m). At each settlement date, the
U.S. bank pays a fixed rate of 8 percent on the pounds received, and
an English bank pays a variable rate equal to London interbank
offered rate (LIBOR) on the U. S. dollars received. Given the
following information, what payment is made to whom at the end of
year 2?
The U. S. bank pays:
A. US $5.5m and the English bank pays ￡ 5.36m.
B. US $6m and the English bank pays ￡ 5.36m.
C. ￡ 5.36m and the English bank pays US $5.5m.
32. The motivation for entering into a swap agreement is that:
A. it provides firms that face financial risks with a flexible way
to manage that risk.
B. it provides firms that face financial risks with a fixed way to
manage that risk.
C. it gives you an ability to swap amongst a diverse range of
products.
33. Swap contracts typically:
A. are standardized contracts.
B. cover a single payment.
C. do not require a payment from either party at initiation.
34. Consider a 1-year quarterly-pay $1000000 equity swap based on 90day London Interbank Offered Rate (LIBOR) and an index return.
Current LIBOR is 3.0 percent and the index is at 840. Below are the
index level and LIBOR at each of the four settlement dates on the
swap.
Q1
Q2
Q3
Q4
LIBOR
3.2%
3.0%
3.4%
3.9%
Index
881
850
892.5
900
At the final settlement date, the equity-return payer will:
A. pay $97.
B. pay $16903.
C. receive $97.
35. Party C and D hold German marks and U. S. dollars respectively.
The spot exchange rate between German marks and U. S. dollars is 2.5
marks per dollar. Party C holds 25 million marks and wants dollars.
Assume the tenor of the swap is 7 years. Party C is a German firm
with access to marks at a rate of 7% , while Party D must pay 8% to
borrow marks. Party D, however, can borrow dollars at 9%, while Party
C must pay 10% for its dollar borrowings. The annual amount received
by Party C is:
A. DM 25 million.
B. $10 million.
C. DM 2 million.
36. Assume the following information relating to a swap agreement.
The swap covers a five-year period and involves annual payments on
a $1000000 notional principal amount.
Party A is the pay-fixed counterparty and agrees to pay a fixed
rate of 9% to Party B. In return, Party B, the receive-fixed
counterparty, agrees to pay a floating rate of LIBOR to Party A.
Party A pays:
A. $87500 each year to Party B.
B. $90000 each year to Party B.
C. $2500 each year to Party B.
37. Consider a swap with a notional principal of $120 million.
Given the above diagrams, which of the following statements is TRUE?
At the end of 360 days :
A. A pays B $0.6 million.
B. A pays B $6.6 million and B pays A $6 million.
C. A pays B $13.2 million and B pays A $12 million.
38. A Swiss firm can borrow in Switzerland at 10 percent and in the
U. S. at 8.5 percent. A U. S. firm can borrow in Switzerland at 10.5
percent and in the U. S. at 8.5 percent. Which firm has a comparative
advantage in which currency? The:
A. Swiss firm has a comparative advantage borrowing in the U. S.
B. Swiss firm has a comparative advantage borrowing in Switzerland.
C. U.S. firm has a comparative advantage in borrowing in the U. S.
39. Assume the following information relating to a fixed-for-fixed
currency swap between Party C and D who hold German marks and U. S.
dollars respectively. The spot exchange rate between German marks and
U. S. dollars is 2.5 marks per dollar. The U. S. interest rate is 10%
and the German interest rate is 8%. Party C holds 25 million marks
and wants dollars. In return for the marks, Party D would pay:
A. DM 25 million to Party C at the initiation of the swap.
B. $10000000 to Party C at the initiation of the swap.
C. $10000000 to Party C at the initiation of the swap.
40. Which of the following statements is NOT an advantage of swaps?
Swaps:
A. give the traders privacy.
B. have little or no regulation.
C. minimize default risk.
41. Which of the following is NOT considered a reason for using the
swaps market? To:
A. reduce transactions costs and obtain cheaper financing.
B. exploit market inefficiencies.
C. maintain privacy.
42. Which of the following statements about swaps is least accurate?
A. Swaps typically have zero value at initiation.
B. Swaps can have significant default risk.
C. Parties to swap contracts are often individual speculators.
43. Which of the following characteristics about swaps is least
accurate? Swaps:
A. are custom instruments and involve counterparty risk.
B. are highly regulated.
C. have no active secondary market.
44. The least likely way to terminate a swap agreement prior to
expiration is to:
A. make/receive a payment to/from the original counterparty.
B. sell the swap.
C. enter into an offsetting swap.
(二) 习题答案
1. C.
A plain vanilla interest rate swap is a contract where one party
pays fixed while the counterparty pays floating, both in the same
currency.
2. C.
The bank faces two problems. First, if the Japanese yen increases
in value, it will take more U.S. dollars to repay the Japan
depositors. Indeed, if the Japanese yen increases significantly, it
may take more U. S. dollars to repay the Japan depositors than the
bank makes on the U. S. loan. Secondly, if the interest rate in Japan
rises, the bank pays more in interest on its CDs while the rate on
the bank's U. S. loans does not change. In this ease, interest
expense would rise and interest income would remain the same, which
narrows the bank's profits.
3. B.
Variable to an interest rate swap counterparty, and receive fixed.
There is no problem for the bank with respect to currencies and,
therefore, this should not be a currency swap. The bank's problem is
that as interest rates decrease, the bank's interest income declines.
To offset this loss (to hedge) , the bank needs to win in the swap as
interest rates decrease. Therefore, the bank should pay variable and
receive fixed in an interest rate swap. The bank has essentially
swapped floating rate payments into fixed rate payments.
4. C.
Puts are more valuable when the asset price falls.
5. C.
XYZ company owes the dealer $1000000 × 0.08 × (90/360) = $20000.
The dealer owes XYZ company $1000000) ×0.092 × (90/360) = $23000.
Net: the dealer pays XYZ company $23000 - $20000 = $3000.
6. B.
There is no problem for the bank with respect to currencies, and,
therefore, this should not be a currency swap. The bank's problem is
that as interest rates decrease, the bank's interest income declines.
To offset this loss ( to hedge) , the bank needs to win in the swap
as interest rates decrease. Therefore, the bank should pay variable
and receive fixed in an interest rate swap. Floating rate receipts
would then offset floating rate payments and the bank would be left
with a fixed spread between assets and liabilities.
7. C.
Year Fix pay Vat. pay Net Dollars
1 10% 11% 1% to fixed + $100.000
2 10% 12% 2% to fixed + $200.000
3 10% 9% 1% to variable - $100.000
8. C.
1000000 × (0.0475 + 0.005 ) =52500.
9. C.
In a currency swap, payments are not netted. Because they are made
in different currencies, full interest payments are made, and the
notional principal is also exchanged.
10. C.
Floating rate payments in a swap are based on the reference rate
for the prior period. The payment is: 0.03 × 90/360 × 1000000 =
$75000.
11. C.
The futures market, because of the use of a standardized contract,
is more liquid; and, because the exchange guarantees the contract,
futures contracts have less credit risk. However, swaps contracts,
because they are over-the-counter (private) contracts, allow the firm
to maintain privacy.
12. B.
Exploiting market inefficiencies is no longer considered a
motivation for entering into swap agreements. Historically, there
were two basic motivations for swaps, to exploit market
inefficiencies and to attempt to obtain cheaper financing. Both were
based on the belief that financial markets were inefficient. Today,
the swap markets have matured and there are few arbitrage
opportunities. The swap markets are considered operationally
efficient and flexible. Thus, the main reasons to enter into swap
agreements today include: to reduce transaction costs, to avoid
costly regulations, and to maintain privacy.
13. B.
Party A wants to swap his fixed-rate payment, so he will pay the
fixed payments in the swap and receive the floating rate payments
based on LIBOR plus 100bp. First calculate the first fixed rate
payment as: $100000000 × [0.065 × (90/360) ] = $1625000. Next
calculate the first floating-rate payment as: $100000000 × [ (0.052
+ 0.01 ) × (90/360) ] = $1550000. Since Party A is paying fixed and
receiving floating, the net payment from Party A is $1625000 $1550000 = $75000 (a cash outflow). Notice you need only 90-day LIBOR
since payments were being calculated quarterly and the question asked
for the first net payment.
14. B.
The net payment formula for the floating rate payer is : Floating
Rate Paymentt = ( LIBORt-1 - Swap Fixed Rate) × ( number days in term
/ 360) × Notional Principal If the result is positive, the floatingrate payer owes a net payment and if the result is negative, then the
floating-rate payer receives a net inflow. Note: We are assuming a
360 day year. Floating Rate Payment = (0.048 -0.065) × (30/360) ×
10000000 = - $14167. Since the result is negative, 123 Inc will
receive this amount.
15. B.
The net payment formula for the fixed-rate payer is:
Fixed Rate Paymentt = ( Swap Fixed Rate - LIBORt-1 ) × ( number days
in term/360) × Notional Principal. If the result is positive, the
fixed-rate payer owes a net payment and if the result is negative,
then the fixed-rate payer receives a net inflow.
We can manipulate this equation to read : Swap Fixed Rate = LIBORt-1
+ [ ( Fixed Rate Payment )/( days in term/360 × Notional Principal)]
= 0.07 + ( -93750)/(270/360 × 25000000 ) =0.07-0.005 = 0.065, or
6.5%. (The Fixed Rate payment will have a negative sign because we
are told that RWDY receives a net payment)
16. C
The notional amount is used to calculate both the fixed and the
floating rate payment streams.
17. A.
There is no exchange of the principal amount at the initiation or
termination of a plain vanilla swap.
18. C.
The equity-return payer will pay the index return minus the fixed
rate at the initiation of the swap.
[ (881/840 - 1 ) - 0.0075 ] × 1000000 = $41309.52
19. C.
Payments are not usually netted out because the payments are
denominated in two different currencies, which does not easily allow
for netting.
20. A.
Since Company Z can borrow French francs at a lower interest rate
than can Company W, Company Z has the comparative advantage Company Z,
then, should borrow French francs.
21. B.
A swap contract in which at least one party makes payments based on
the return on an equity, portfolio, or market index, is called an
equity swap.
22. C.
If the periodic return on the equity is negative, the fixed-rate
payer must pay the fixed rate plus the percentage of (negative)
equity return, times the notional principal.
23. A.
Unlike interest rate swaps, notional principal is swapped at both
the initiation and the termination of the swap. Full interest
payments are exchanged at each settlement date. Exploiting market
inefficiencies was once a motivation for currency swaps, but it is
not today (because the market is efficient). Today motivations range
from reducing transactions costs to maintaining privacy to avoiding
regulation.
24. A.
The net payment formula for the floating rate payer is:
Floating Rate Paymentt = ( LIBORt-1 - Swap Fixed Rate ) × ( days in
term/360 ) × Notional Principal.
If the result is positive, the floating-rate payer owes a net
payment and if the result is negative, then the floating-rate payer
receives a net inflow. Note: We are assuming a 360 day year. Here,
Floating Rate Payment = (0.06 -0.055) × (90/360) × 1000000 = $1250.
Since the result is positive, No Errors will pay this amount. Since
the reserve balance is $1000, No Errors needs an additional $250.
25. B.
Because it involves two different currencies, this would be a
currency swap.
26. A.
X can borrow dollars at 7%, while Z borrow yen at 2%, The two
companies can then swap, with the gains from the swap being shared
many different ways. X might pay 2% to Z on the swap, which will
completely cover Z's borrowing cost. As long as Z then pays X between
7% and 9% on the dollar swap, both parties are better off. If Z pays
8% , rather than 9% , and X is receiving the 1% , which reduces its
borrowing costs.
27. C.
The underlying asset, of a call option on a future, is the futures
contract. When a call futures option is exercised, the buyer receives
a long position in the future and a cash payment equal to the cash
settlement price minus the exercise price of the futures option.
Since the underlying asset is not a physical good, no physical good
is received when the call option on a future is exercised.
28. A.
A swap is an agreement between two or more counterparties to
exchange (swap) cash flows over a specified future period. Swaps are
flexible because, unlike futures, they are custom tailored to meet
the needs of the specific counterparties involved in the agreement.
Common types are interest rate and foreign currency swaps.
29. A.
The original notional principal amounts are exchanged at contract
termination; there is no adjustment to the amounts for the change in
exchange rates over the life of the swap.
30. B.
Selling a swaption gives the seller an obligation to enter into a
swap if the swaption is exercised. To exit a swap, the entity would
want to buy the swaption.
31. C.
The U. S. bank pays 8% fixed on ￡ 67m, which makes for an annual
payment of ￡ 5.36m.
The variable rate to be used at time period 2 is set at time period
1 (the arrears method).
Therefore, the English bank pays 5.5% times US $100m for a payment
of US $5.5m.
32. A.
The motivation for entering into a swap agreement is that it
provides firms that face financial risks with a flexible way to
manage that risk.
33. C.
Swaps typically do not require a payment from either party at
initiation. The exception is currency swaps.
34. C.
The equity return payer will pay the equity return and receive the
floating rate return which is based on the Q3 realized LIBOR.
[0.034 × (90/360) - (900/892.5 - 1 ) ] × 1000000 = $96.64
35. C.
The annual amount received by Party C is DM 2 million. $10 million
× 2.5 = DM 25 million DM 25 million × 8% = DM 2 million
36. B.
Party A pays $90000each year to Party B. $1000000 ×9% = $90000
37. A.
The variable rate to be used at the end of 360 days is set at the
180-day period (the arrears method). Therefore, the appropriate
variable rate is 10 percent, the fixed rate is 11 percent, the time
period is 180 days, and the interest payments are netted. The fixedrate payer, counterparty A, pays according to:
(Swap Fixed Rate -LIBORt-1 ) (number of days/360 ) (Notional
Principal).
In this case, we have(0.11 -0.1 )(180/360) ( $120 million) = $0.6
million.
38. B.
The interest rates are equal for borrowing in the U. S. , but the
Swiss firm can borrow in Switzerland at a lower rate, thus giving the
Swiss firm the comparative advantage in Switzerland.
39. C.
In return for the marks, Party D would pay $10000000 to Party C at
the initiation of the swap.
DM 25000000/2.5 = $10000000.
40. C.
Swaps do not minimize default risk. Swaps are agreements between
two of more parties, and there are no guarantees that one of the
parties will not default. Note that swaps do give traders privacy and,
being private transactions, have little to no regulation and offer
the ability to customize contracts to specific needs.
41. B.
Historically, the two basic motivations for swaps were to exploit
market inefficiencies and attempt to achieve cheaper financing. Today,
the swaps market has matured and now offers few arbitrage
opportunities to exploit market inefficiencies. In addition to
seeking cheaper financing, current reasons for using swaps include
reducing transactions costs, avoiding costly regulations, and
maintaining privacy.
42. C.
Parties to swaps contracts are usually large institutions, rarely
individual speculators or hedgers.
43. B.
Swap contracts are largely unregulated.
44. B.
There is no functioning secondary market in swaps; selling a swap
would be unusual and would require the permission of the counterparty.
72. Risk Management Applications of Option Strategies(风险管理应用:
期权策略)
(一)强化习题
1. An investor writes a covered call on a $40 stock with an
exercise price of $50 for a premium of $2. The investor's maximum:
A. gain will be $12.
B. gain will be $2.
C. loss will be $40.
2. Which of the following combinations of options and underlying
investments have similarly shaped profit/loss diagrams?
A. Long call option/short put option and long stock position.
B. Covered call and short stock/long call.
C. Short put option/long call option and protective put.
3. An investor buys a stock at $90 and also buys a put option on
the stock with a put price of $4 and having an exercise price of $80.
At expiration of the put option, the stock price has fallen to $60.
The loss for the investor's position would be :
A. $6.
B. $14.
C. $16.
4. The current market price of NTSC is $44 per share. One-year call
options written on NTSC with strike price $50 are priced at $4.25.
John Harris plans to implement a covered call strategy NTSC using
these calls, and covering 1000 shares, What will the per-share
expiration profit/loss be on this strategy if the NTSC is priced at
$56 at expiration?
A. $16.25.
B. $10.25.
C. $4.25.
5. A put on Stock X with a strike price of $40 is priced at $3.00
per share ; while a call with a strike price of $40 is priced at
$4.50. What is the maximum per share loss to the writer of the
uncovered put and the maximum per share gain to the writer of the
uncovered call?
the maximum per share loss the maximum per share gain
①A. $37.00 $4.50
②B. $37.00 $37.00
③C. $4.50 $4.50
A. ① B. ② C. ③
6. An investor purchases a stock for $40 a share and simultaneously
sells a call option on the stock with an exercise price of $42 for a
premium of $3/share. Ignoring dividends and transactions cost, what
is the maximum profit that the writer of this covered call can earn
if the position is held to expiration?
A. $81.
B. $6.
C. $5.
7. The profit/loss diagram for a covered call strategy looks like
what other type of profit/loss diagram
A. Short call.
B. Long call.
C. Short put.
8. Linda Reynolds pays $2.45 to buy a call option with a strike
price of $42. The stock price at which Reynolds earns $3.00 from her
call option position is :
A. $47.45.
B. $3.00.
C. $2.45.
9. A1 Steadman receives a premium of $3.80 for shorting a put
option with a strike price of $64. If the stock price at expiration
is $84, Steadman's profit or loss from the options position is :
A. $16.20.
B. $20.00.
C. $3.80.
10. Jimmy Casteel pays a premium of $1.60 to buy a put option with
a strike price of $145. If the stock price at expiration is $128,
Casteel's profit or loss from the options position is:
A. $18.40.
B. $1.60.
C. $15.40.
11. In October, James Knight owned stock in Valerio, Inc. , that
was valued at $45 per share. At that time, Knight sold a call option
on Valerio with an exercise price of $60 for $1.45. In December, at
expiration, the stock is trading at $32. What is Knight's profit (or
loss) from his covered call strategy? Knight:
A. lost $11.55.
B. lost $13.00.
C. gained $1.45.
12. George Mote owns stock in IBM currently valued at $112 per
share. Mote writes a call option on IBM with an exercise price of
$120. The call option is sold for $1.80. At expiration, the price of
IBM is $115. What is Mote's profit (or loss) from his covered call
strategy? Mote:
A. gained $3.00.
B. lost $1.80.
C. gained $4.80.
13. James Jackson currently owns stock in PNG, Inc. , valued at
$145 per share. Thinking that PNG is overbought and will decrease in
price soon, Jackson writes a call option on PNG with an exercise
price of $148 for a premium of $2.40. At expiration of the option,
PNG stock is valued at $152 per share. What is the profit or loss
from Jackson's covered call strategy? Jackson :
A. gained $5.40.
B. lost $4.60.
C. gained $9.40.
14. Anthony Gleason owns a stock valued at $50 per share. Gleason
buys a put option with a strike price of $50 for $3. At expiration of
the put option, the stock is valued at $65 per share. The profit from
Gleason's portfolio insurance strategy is:
A. $18.
B. $3.
C. $12.
15. Tommy Stamlano owns stock worth $80 per share. Stamlano buys a
put option with a strike price of $70 for $1.50. At expiration of the
put option, the stock price is $65 per share. The profit or loss from
Stamlano's portfolio insurance strategy is a:
A. loss of $11.50.
B. loss of $1.50.
C. gain of $16.50.
16. Delbert Gossert owns stock worth $32 per share. Gossert buys a
put option with a strike price of $32 for $2.50. At expiration, the
stock is valued at $32 per share. The profit or loss from Gossert's
portfolio insurance strategy is a:
A. loss of $2.50.
B. $0, no gain or loss.
C. gain of $2.50.
17. Frank Jameson is a portfolio manager with 90 percent of the
large-cap diversified mutual fund he controls invested in common
stocks. Jameson is concerned the overall market will decline by a
significant amount over the next two months due to a slowing of the
general economy. Which of the following actions will provide a hedge
for the mutual fund?
A. Purchasing call options on the S&P 500.
B. Writing put options on the S&P 500.
C. Purchasing put options on the Standard and Poor's 500 Index (S&P
500).
18. A June put option has a premium of $1.50. At expiration, the
breakeven value of the underlying asset is $36.50. The strike price
of the option is :
A. $1.50.
B. $36.50.
C. $38.00.
19. An investor buys two calls and one put on ABC stock, all with a
strike price of $45. The calls cost $5 each, and the put costs $4. If
the investor closes the position when ABC is priced at $55, the
investor's per share gain or loss is :
A. $4 loss.
B. $6 gain.
C. $10 gain.
20. An investor buys a call option with a $25 exercise price priced
at $4 and writes a call option with a $40 exercise price priced at
$2.50. If the Price of the stock increases to $50 at expiration and
the options are exercised on the expiration date, the net profit at
expiration (ignoring transaction costs) is:
A. $8.50.
B. $13.50.
C. $16.50.
21. An at-the-money protective put position (comprised of owning
the stock and buying a put) :
A. protects against loss at any stock price below the strike price
of the put.
B. has limited profit potential when the stock price rises.
C. returns any increase in the stock's value, dollar for dollar,
less the cost of the put. Use the graph below in answering Questions
22～23 :
The graph is a depiction of a call option with an exercise price of
$100.
22. The graph shows that the:
A. the value of the call is $100.
B. the value of the call is unknown.
C. the value of the call is unlimited, in principle.
23. If the stock price were $500, at expiration, the call would be
worth :
A. $0.
B. $100.
C. $400.
24. Consider the graph below.
Assume a trader owns a share currently priced at $100. She writes a
call option on this share with an exercise price of $110 and an
assumed price of $4. For any stock price less than or equal to $110
A. she is $14 better off with the covered call than she would be
with the stock alone.
B. she is $4 worse off with the covered call than she would be with
the stock alone.
C. she is $4 better off with the covered call than she would be
with the stock alone.
25. An options investor sells one stock put option with the
following characteristics:
Type of option: put option on stock
Underlying asset: 100 shares of Bank of America Stock
Exercise price : $55 per share
Premium : $2.44 per share
Expiration date : October
By taking a SHORT position in this put option, the investor has
A. obligated herself to sell 100 shares of Bank of America stock
and receive $5500 during the specified time period (expiration date
in October).
B. purchased the right to decide whether to sell 100 shares of Bank
of America stock and receive $5500 during the specified time period
(expiration date in October).
C. obligated herself to purchase 100 shares of Bank of America
stock and pay $5500 during the specified time period (expiration date
in October).
26. An options investor purchases one stock put option with the
following characteristics:
Type of option: put option on Hock
Underlying asset: 100 shares of WalMart
Exercise price: $47.50 per share
Premium : $2.00 per share
Expiration date : October
If the expiration-day price of WalMart stock were $5000 per share,
the profit/loss for the LONG put option would be:
A. - $2.00.
B. $0.50.
C. - $0.50.
27. Consider a stock put option with the following characteristics:
Type of option: put option on stock
Underlying asset: 100 shares of Compaq
Exercise price : $32.50 per share
Premium : $4.00 per share
Expiration date : November
Expiration-day price of Compaq stock were $28.50 per share, which
of the following would describe the expiration-day profit/loss for
the investors in the Compaq put option?
A. LONG = - $4.00; SHORT = $4.00.
B. LONG = $4.00; SHORT = - $4.00.
C. LONG = $0.00; SHORT = $0.00.
28. An investor owns a stock portfolio that closely follows the
Standard & Poor's 500 Index (S&P500). He purchases one S&P500 stock
index put option. The investor's position is now portfolio insurance
with the following characteristics:
Portfolio position: LONG S&P500
Portfolio purchase price: 1427.21
Option position: LONG 1 put option
Underlying asset: S&P 500 Index
Exercise price : 1225
Premium : 3
Expiration date : November
If the expiration-day price of S&P500 were 1200, then the
expiration-day profit/loss for the portfolio insurance would be:
A. +227.21+25-3=249.21.
B. -227.21+25-3= -205.21.
C. -227.21+0-3 = -230.21.
29. Consider a stock put option with the following characteristics:
Type of option: put option on stock
Underlying asset: 100 shares of Dow Chemicals
Exercise price : ______
Premium: $1.44 per share
Expiration date : October
If the expiration-day price of Dow Chemicals were ST = $79.25, and
this were known to be the breakeven dock price, what would the
exercise price of the option be?
A. $80.69.
B. $77.81.
C. $79.25.
30. Jasper Quartermaine is interested in using the options market
to create "insurance" against a severe drop in the value of a stock
portfolio that he owns. How could he best accomplish this goal and
what is this type of strategy called?
Type of option Strategy
A. write call options protective put
B. write call options covered call
C. buy put options protective put
31. Aleda Jones owns a stock and buys an at-the-money put option
for a premium of $3.00. If the breakeven ( zero profit) point of this
portfolio insurance strategy is $92, the strike price of the option
is :
A. $89.00.
B. $95.00.
C. $3.00.
32. Call options on the stock of Verdant, Inc. , with a strike
price of $45 are priced at $3.75. Put options with a strike price of
$45 are priced at $3.00. Which of the following most accurately
describes the potential payoffs for owners of these options
( assuming no underlying positions in Verdant)?
Maximum loss Potential Maximum gain Potential
A. Call writer Call buyer
B. Put buyer Call writer
C. Put writer Call buyer
33. An investor bought a 15 call for $14 on a stock trading at $20.
If the stock is trading at $24 at option expiration, what is the
profit and the value of the call at option expiration?
Profit Value of the Call
A. - $5 $5
B. $4 - $5
C. - $5 $9
34. A call option sells for $4 on a $25 stock with a strike price
of $30. Which of the following statements is FALSE?
A. At expiration, the buyer of the call will not make a profit
unless the stock's price exceeds $30.
B. At expiration, the writer of the call will only experience a net
loss if the price of the stock exceeds $34.
C. A covered call position at these prices has a maximum gain of $9
and the maximum loss of the stock price less the premium.
35. Suppose the price of a share of Stock A is $100. A European
call option that matures one month from now has a premium of $8, and
an exercise price of $100. Ignoring commissions and the time value of
money, the holder of the call option will earn a profit if the price
of the share one month from now:
A. increases to $106.
B. decreases to $94.
C. increases to $110.
36. Which of the following statements regarding call options is
most accurate? The:
A. breakeven point for the seller is the strike price minus the
option premium.
B. call holder will exercise (at expiration) whenever the strike
price exceeds the stock price.
C. breakeven point for the buyer is the strike price plus the
option premium.
37. Shigeo Kishiro recently purchased an American put option and
Lendon Grey recently wrote an American call option on the same
underlying stock, Tackel Sports (currently trading at $40 per share).
Kishiro paid $2.75 for an exercise price of $38.00 and Grey received
$3.75 for a strike price of $42. Assume that there are no transaction
costs to exercise.
At a stock price of $43:
A. if Grey exercises, he will have gained a total of $4.75.
B. the intrinsic put value is $0 and the put is at-the-money.
C. the intrinsic call value is $1.
38. Consider the graph below.
The graph is a depiction of a put option with an exercise price of
$100. If the tock trades for $97.
A. the put is worth $3.
B. the put is worth $103.
C. the put is worth $97.
39. The following profit/loss diagram is for what type of position?
A. Long put.
B. Long stock, long put (portfolio insurance).
C. Long stock, short call (covered call).
40. Given the covered call option diagram below and the following
information, what are the dollar values for points X and Y? The
market price of the stock is $70, the strike price of the call is $80,
and the call premium is $5.
A. $75, and point Y represents a dollar value of $15.
B. $70, and point Y represents a dollar value of $15.
C. $80, and point Y represents a dollar value of $15.
41. An investor writes a July 20 call on a stock trading at 23 for
premium of $4. The breakeven price on the trade and the maximum gain
on the trade are, respectively:
Breakeven Price
Maximum Gain
①A. $24
$4
②B. $24
$3
③C. $27
unlimited
A. ① B. ② C. ③
42. An investor bought a 40 put on a stock trading at 43 for a
premium of $1. What is the maximum gain on the put and the value of
the put at expiration if the stock price is $41 ?
Maximum Gain on Put Value of the Put at Expiration
①A. $39 $0
②B. $4O $2
③C. unlimited $1
A. ① B. ② C. ③
43. In October, James Knight owned stock in Valerio, Inc. , that
was valued at $45 per share. At that time, Knight sold a call option
on Valerio with an exercise price of $60 for $1.45. In December, at
expiration, the stock is trading at $32. What is Knight's profit (or
loss) from his covered call strategy? Knight:
A. gained $11.55.
B. lost $13.00.
C. lost $11.55.
44. The option position illustrated in the following profit/loss
diagram depicts a:
A. long call where the breakeven is $53.50.
B. long call where the breakeven is $46.50.
C. short put where the breakeven is $53.50.
(二)习题答案
1. A.
As soon as the stock rises to the exercise price, the covered call
writer will cease to realize a profit because the short call moves
into-the-money. Each dollar gain on the stock is then offset with a
dollar loss on the short call. Since the option is $10 out-of-the-
money, the covered call writer can gain this amount plus the $2 call
premium. Thus, the maximum gain is $2 + $10 = $12. However, because
the investor owns the stock, he or she could lose $40 if the stock
goes to zero, but gain $2 from the call premium. Maximum loss is $38.
2. A.
A long call and a short put will provide a nearly identical Payoff
as a long stock. Professor's Note : the easiest way to see this is to
draw the payoff diagram for the combined option positions.
3. B.
The put cost is $4 and the unprotected loss on the stock is $10.
The loss for the investor is $14.
4. B.
The strategy will earn $6 per share due to the rise in the value of
NTSC to $50, and $4.25 from the option premium. Any appreciation
beyond $50 does not benefit John.
5. a.
The maximum loss to the uncovered put writer is the strike price
less the premium, or $40.00 - $3.00 = $37.00. The maximum gain to the
uncovered call writer is the premium, or $4.50.
6. C.
This is an out of the money covered call. The stock can go up $2 to
the strike price and then the writer will get $3 for the premium,
total $5.
7. C.
The profit/loss diagram for the covered call looks like the
profit/loss diagram for a short put position. Both option positions
have limited profit potential, with the potential loss equal to the
strike price less the premium.
8. A.
To earn $3.00, the stock price must be above the strike price by
$3.00 plus the premium Reynolds paid to buy the option ( $42.00 +
$3.00 + $2.45 ).
9. C.
The put option will not be exercised because it is out-of-the-money,
Max (0, X-S). Therefore, Steadman keeps the full amount of the
premium, $3.80.
10. C.
The put option will be exercised and has a value of $145 - $128 =
$17 [Max (0, X -S) ]. Therefore, Casteel receives $17 minus the $1.60
paid to buy the option. Therefore, the profit is $15.40 ( $17 less
$1.60).
11. A.
Since the option is out-of-the-money at expiration (Max (0, S X) ), the option is worthless. Also, the stock decreased in value
from $45 per share to $32 per share, creating a $13 loss. The $13
loss is partially offset by the $1.45 premium Knight received.
Therefore, the total loss from the covered call position is $11.55
( - $13 + $1.45).
12. C.
Since the option is out-of-the-money at expiration (Max (0, S -X) ),
the option is worthless. Also, the stock increased in value from $112
per share to $115 per share, creating a $3 gain. The $3 gain in the
stock price is added to the $1.80 gain from writing the (unexercised)
call option. Therefore, the total gain is $4.80 ( $3 + $1.80).
13. A.
The option is in-the-money at expiration (Max (0, S -X) ) and the
PNG stock will be called away from Jackson at $148 per share,
limiting Jackson's gain from owning the stock to $3 ( $148-145).
However, Jackson also gains the $2.40 from writing the call option.
Therefore, Jackson's gain from the covered call strategy is $5.40
( $3.00 + $2.40).
14. C.
The option is out-of-the-money at expiration ( Max (0, X - S) ) and
is, therefore, worthless. Gleason gains the $15 per share increase in
the stock price but is out the premium for the option, leaving a gain
of $12=( $65- $50- $3).
15. A.
The put option is in-the-money at expiration ( Max (0, X - S) ) and
is worth $5. Stamlano lost $15 on the stock ( $80- $65) and is also
out the premium on the option, $1.50. Therefore, Stamlano lost a
total of $11.50 ( - $15 - $1.50 + $5).
16. A.
The put option is at-the-money at expiration ( Max (0, X - S) ) and
is, therefore, worthless. The stock price didn't change, so Gossert
is only out the premium paid for the option, $2.50.
17. C.
A put option guarantees the buyer can sell the asset to the writer
at the exercise price, on or before its expiration. Puts allow
traders to earn a positive return when the underlying asset decreases
in value. A diversified mutual fund can trade in S&P500 Index options,
thereby closely matching the large-cap diversified portfolio. If the
market declines, some or all of the losses on the portfolio will be
offset by gains on the index put options.
18. C.
The strike price of the put option is determined as the breakeven
(zero profit) point plus the option premium ( $36.50 + 1.50).
Remember that the breakeven point for both the buyer and seller of a
call option is the strike price plus the premium.
19. B.
The combined cost of the two options is (2 × $5 ) + $4 = $14.
At expiration, the put is worth Max [0, 45 -55] = $0.
Each of the two calls is worth Max[0, S -X ] = $10.
Thus, the per share gain/loss is: - $14+ $0+(2× $10) = $6.
20. B.
The net cost is: $4 and received $2.50= $1.50.
Gain or loss from the calls : long call $50 - $25 = gain of $25.
Written call $50- $40= $10 loss. net position $25- $10= $15.
Overall gain or loss: gain $15 -cost $1.50 = $13.50 gain.
21. C.
You have no downside risk, so your only loss will be the cost of
the put. When the stock price goes up, the put will expire worthless
and the stock gives you a dollar for dollar gain. Answer A is not as
correct as C. Statement A is true; you are protected against loss at
any stock price below the strike price of the put. But the answer
didn't mention or consider the cost of the put. The wording of this
question was not very dear.
22. C.
The graph shows that the value of the call is unlimited, in
principle.
23. C.
If the stock price were $500, at expiration, the call would be
worth $400 as follows :
Stock price - exercise price = intrinsic value $500 - $100 = $400.
24. C.
From the graph we can deduce that:
For any stock price less than or equal to $110, she is $4 better
off with the covered call than she would be with the stock alone.
25. C.
The seller of a put option is obligated to buy the underlying
instrument. The exercise price of this option is: 100 × 55 = 5500.
26. A.
Max(O, X-ST) –Pt =Max(0, 47.50-50.00) -2.00 =Max(0, -2.50) -2.00
=0- 2.00= -2.00
27. C.
LONG option: Max (0, X - ST) - PT = Max ( 0, 32.50 - 28.50) - 4.00 =
Max (0, 4.00 ) - 4.00 =4.00 -4.00 =0.
SHORT option : Pt - Max ( 0, X - ST ) = 4.00 - Max (0, 32.50 28.50 ) = 4.00 - Max ( 0, 4.00) =4.00-4.00=0.
28. D.
(ST-St) +Max(0, X-ST) -Pt =(1, 200.00 - 1, 427.21) +Max(0, 1, 225-1,
200.00)-3.00 = -227.21 +Max(0, 25.00) -3.00 = -227.21 +25.00 -3.00 =
- 205.21
29. A.
X = ST + Pt = 79.25 + 1.44 = 80.69
30. C.
An investor can simulate portfolio insurance by purchasing put
options. Losses in the underlying portfolio are offset by gains in
the put position. The investor is already long his portfolio and if
he buys a long put for his portfolio he is replicating a protective
put strategy.
31. A.
The strike price of an at-the-money put option in a portfolio
insurance strategy is the breakeven (zero profit) point minus the put
premium ( $92 - $3).
32. A.
The writer of an option can only profit from the premium received,
but has exposure to moves in the underlying moves in the underlying
asset price. The put writer could lose $42, but the call writer's
potential loss is unlimited.
33. C.
The potential gains on a call purchase are unlimited. With a stock
price of $24, the call at 15 is $9 in the money. By subtracting out
the 14 call price a loss of $5 results.
34. A.
The buyer will not have a net profit unless the stock price exceeds
$34 (strike price plus the premium). The other statements are true.
At $30 the option will be exercised, but the writer will only lose
money in a net sense when the stock's price exceeds X + C = $30 + $4.
The covered call's maximum gain is $4 premium plus $5 appreciation.
35. C.
The breakeven point is the strike price plus the premium, or $100 +
$8 = $108. Any price greater than this would result in a profit, and
the only choice that exceeds this amount is $110.
36. C.
The breakeven for the buyer and the seller is the strike price plus
the premium. The call holder will exercise if the market price
exceeds the strike price and the greatest profit the writer can make
is the option premium.
37. C.
The intrinsic value of a call is given as : Max [ 0, S - X ], where
S = stock price and X = strike price. Here, Max [0, 43-42] =Max [0, 1]
=1.
The other answers are incorrect. The counterparty to Kishiro is the
put writer. At a stock price of $43, Kishiro will not exercise ( the
put is out-of-the money) , so the writer has a gain equal to the
premium, or $2.75. Grey wrote the option and thus cannot exercise.
The intrinsic value of the put is correct at $0, or Max[0, X -S] ,
but as previously noted, the put is out-of- the money at a stock
price of $43.
38. A.
If the stock trades for $97, the put is worth $3.
Exercise price - stock price = $100 - $97 = $3.
39. B.
The above diagram is for a long stock, long put strategy (portfolio
insurance). The loss is limited to the cost of the option while the
potential upside profit is unlimited. Note that the portfolio
insurance payoff diagram is identical to the profit/loss diagram for
a long call option, however a long call is not one of the answer
choices.
40. C.
The kink in the diagram of a covered call is always at the exercise
price of the option. Therefore, point X is $80. As the stock price
rises above $80, the stock is called away and the maximum gain is the
call premium plus the stock price gain ( $80 - $70 ). The maximum
gain, then, at point Y is ( $5 + $10 = $15).
41. A.
The breakeven price is the premium received on the call plus the
strike price. For a writer of an option, the maximum gain is the
premium received.
42. A.
The maximum gain on a long put is the strike price minus the
premium, 40 - 1 = $39. The value at expiration is zero because the
put is out-of-the-money.
43. C.
Since the option is out-of-the-money at expiration ( Max (0, S X) ), the option is worthless. Also, the stock decreased in value
from $45 per share to $32 per share, creating a $13 loss. The $13
loss is partially offset by the $1.45 premium Knight received.
Therefore, the total loss from the covered call position is $11.55
( - $13 + $1.45).
44. A.
The diagram depicts a long call position. The buyer of the call
option pays the premium, $3.50, to have the right but not the
obligation to buy the stock at the exercise price, $50. At $53.50,
the buyer of the call will break even because the call option is inthe-money by $3.50, exactly covering the premium.