Options futures and other derivatives test bank pdf

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options futures and other derivatives test bank pdf

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The basis is defined as spot minus futures. A trader is hedging the sale of an asset with a short futures position. The basis increases unexpectedly.

Which of the following is true? The hedger s position improves. The hedger s position worsens. The hedger s position sometimes worsens and sometimes improves. The hedger s position stays the same. The price received by the trader is the futures price plus the basis.

It follows that the trader s position improves when the basis increases. Futures contracts trade with every month as a delivery month. A company is hedging the purchase of the underlying asset on June Which futures contract should it use? The June contract B. The July contract C. The May contract D. The August contract As a general rule the futures maturity month should be as close as possible to but after the month when the asset will be purchased.

In this case the asset will be purchased in June and so the best contract is the July contract. On July 1 the. It closed out its position on July 1. What is the effective price after taking account of hedging paid by the company? A producer of the commodity entered into a December futures contracts on March 1 to hedge the sale of the commodity on November 1. It closed out its position on November 1. What is the effective price after taking account of hedging received by the company for the commodity?

The correlation between the futures price and the commodity price is 0. What hedge ratio should be used when hedging a one month exposure to the price of commodity A? A B C D The optimal hedge ratio is 0.

The futures price for a contract on an index is What trade is necessary to reduce beta to 0. Long contracts B. Short contracts C. Long 48 contracts D. Short 48 contracts To reduce the beta by 0. What trade is necessary to increase beta to 1. Long 96 contracts D. Short 96 contracts To increase beta by 0. The optimal hedge ratio is the slope of the best fit line when the spot price on the y-axis is regressed against the futures price on the x-axis. The optimal hedge ratio is the slope of the best fit line when the futures price on the y- axis is regressed against the spot price on the x-axis.

The optimal hedge ratio is the slope of the best fit line when the change in the spot price on the y-axis is regressed against the change in the futures price on the x-axis. The optimal hedge ratio is the slope of the best fit line when the change in the futures price on the y-axis is regressed against the change in the spot price on the x-axis. The optimal hedge ratio reflects the ratio of movements in the spot price to movements in the futures price.

Which of the following describes tailing the hedge? A strategy where the hedge position is increased at the end of the life of the hedge B. A strategy where the hedge position is increased at the end of the life of the futures contract C. A more exact calculation of the hedge ratio when forward contracts are used for hedging.

None of the above Tailing the hedge is a calculation appropriate when futures are used for hedging. It corrects for daily settlement A company due to pay a certain amount of a foreign currency in the future decides to hedge with futures contracts. Which of the following best describes the advantage of hedging? It leads to a better exchange rate being paid B. It leads to a more predictable exchange rate being paid C. It caps the exchange rate that will be paid D. It provides a floor for the exchange rate that will be paid Hedging is designed to reduce risk not increase expected profit.

Options can be used to create a cap or floor on the price. Futures attempt to lock in the price Which of the following best describes the capital asset pricing model?

Determines the amount of capital that is needed in particular situations B. Is used to determine the price of futures contracts C. Relates the return on an asset to the return on a stock index D.

Is used to determine the volatility of a stock index CAPM relates the return on an asset to its beta. The parameter beta measures the sensitivity of the return on the asset to the return on the market.

Creates long-term hedges from short term futures contracts B. Can avoid losses on futures contracts by entering into further futures contracts C. Involves buying a futures contract with one maturity and selling a futures contract with a different maturity D.

Involves two different exposures simultaneously Stack and roll is a procedure where short maturity futures contracts are entered into.

When they are close to maturity they are replaced by more short maturity futures contracts and so on. The result is the creation of a long term hedge from short-term futures contracts.

Which of the following increases basis risk? A large difference between the futures prices when the hedge is put in place and when it is closed out B. Dissimilarity between the underlying asset of the futures contract and the hedger s exposure C.

A reduction in the time between the date when the futures contract is closed and its delivery month D. None of the above Basis is the difference between futures and spot at the time the hedge is closed out. This increases as the time between the date when the futures contract is put in place and the delivery month increases. C is not therefore correct. It also increases as the asset underlying the futures contract becomes more different from the asset being hedged.

B is therefore correct. Which of the following is a reason for hedging a portfolio with an index futures? The investor believes the stocks in the portfolio will perform better than the market but is uncertain about the future performance of the market B. The investor believes the stocks in the portfolio will perform better than the market and the market is expected to do well C. The portfolio is not well diversified and so its return is uncertain D. All of the above Index futures can be used to remove the impact of the performance of the overall market on the portfolio.

If the market is expected to do well hedging against the performance of the market is not appropriate. Hedging cannot correct for a poorly diversified portfolio.

Which of the following does NOT describe beta? A measure of the sensitivity of the return on an asset to the return on an index B. The slope of the best fit line when the return on an asset is regressed against the return on the market C. The hedge ratio necessary to remove market risk from a portfolio D.

Measures correlation between futures prices and spot prices for a commodity A, B, and C all describe beta but beta has nothing to do with the correlation between futures and spot prices for a commodity Hedging can always be done more easily by a company s shareholders than by the company itself B. If all companies in an industry hedge, a company in the industry can sometimes reduce.

If all companies in an industry do not hedge, a company in the industry can reduce its risk by hedging D. If all companies in an industry do not hedge, a company is liable increase its risk by hedging If all companies in a industry hedge, the prices of the end product tends to reflect movements in relevant market variables.

Attempting to hedge those movements can therefore increase risk. Which of the following is necessary for tailing a hedge? Comparing the size in units of the position being hedged with the size in units of the futures contract B.

Comparing the value of the position being hedged with the value of one futures contract C. Comparing the futures price of the asset being hedged to its forward price D.

None of the above When tailing a hedge the optimal hedge ratio is applied to the ratio of the value of the position being hedged to the value of one futures contract. Gold producers should always hedge the price they will receive for their production of gold over the next three years B.

Solutions Manual Options, Futures, and Other Derivatives

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the test! Test Bank Options Futures and Other Derivatives 8th. Download File PDF Test Bank Derivatives Hull 8th Edition Test Bank Derivatives Hull 8th Edition​.


Test Bank Options Futures and Other Derivatives 9th Edition John C. Hull

A Both forward and futures contracts are traded on exchanges B Forward contracts are traded on exchanges, but futures contracts are not C Futures contracts are traded on exchanges, but forward contracts are not D Neither futures contracts nor forward contracts are traded on exchanges Answer: C 2 Which of the following is NOT true? A Futures contracts nearly always last longer than forward contracts B Futures contracts are standardized; forward contracts are not C Delivery or final cash settlement usually takes place with forward contracts; the same is not true of futures contracts D Forward contracts usually have one specified delivery date; futures contract often have a range of delivery dates Answer: A 3 In the corn futures contract a number of different types of corn can be delivered with price adjustments specified by the exchange and there are a number of different delivery locations. Which of the following is true?

ТО: NDAKOTAARA. ANON. ORG FROM: ETDOSHISHA. EDU МЕНЯЮЩИЙСЯ ОТКРЫТЫЙ ТЕКСТ ДЕЙСТВУЕТ.

Options, Futures, and Other Derivatives, 10th Edition John C. Hull, Test Bank

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