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If one needs to sell in the future and want to reduce the uncertainty, then he should take a long position of the futures contract.
True
False
Question 21 pts
If one needs to buy in the future and want to reduce the uncertainty, then he should take a short position of the futures contract.
True
False
Question 31 pts
For an American call option, one should early exercise when the current stock price is greater than the strike price because the exercise payoff is positive.
True
False
Question 41 pts
The contract size of Euro FX futures is 125,000 Euros.
True
False
Question 51 pts
Standard deviation is a measure of risk.
True
False
Question 61 pts
_________ is a CDO created from a pool of short credit default swaps.
Total return swap
ABS CDO
Credit default swap
synthetic CDO
Question 71 pts
Suppose a company is paying a borrowing rate tied to the T-bond yield. It wants to hedge against its borrowing rate increase in the future but it wants to keep its rate, if the rate goes down. Which interest rate derivative should it use?
Interest rate floor
Swaption
Eurodollar futures option
T-bond futures option
Question 81 pts
Calculate the value of a 6-month American call futures option with $50 strike price. Currently, the futures price is $55, the risk-free rate is 5% and the volatility of the futures price is 20% per annum. Use 500-step binomial model.
7.04
6.00
7.00
5.96
Question 91 pts
Suppose your portfolio mirrors S&P500 index and is valued currently at $1,000,000. The S&P 500 index is currently at 2,000. What action is needed to provide protection against the value of the portfolio falling below $900,000 in 6 months?
Buy 500 6-month S&P500 put options with strike price of 1900.
Buy 1,000 6-month S&P500 put options with strike price of 1900.
Buy 1,000 6-month S&P500 put options with strike price of 1800.
Buy 500 6-month S&P500 put options with strike price of 1800.
Question 101 pts
Next February, suppose you will receive 5,000,000 British Pounds (not Euros) and will convert into US dollars. Which is the correct action to take today in order to hedge against British Pounds exchange rate risk?
Long 40 British Pounds futures contracts expiring in March
Short 40 British Pounds futures contracts expiring in March
Long 80 British Pounds futures contracts expiring in March
Short 80 British Pounds futures contracts expiring in March
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