Question 1

Mark-to-market is a term in the futures market that means that:

Accepted Answer

A)   gains and losses are taken immediately on delivery of the contracts
B)   gains and losses are taken at the end of the day on contracts
C)   gains and losses are taken every hour on contracts
D)   gains and losses are taken on the delivery date on contracts

Question 2

Futures contracts are standardized but NOT usually traded on an organized exchange.

Accepted Answer

A) True 
 B)False

Question 3

From the perspective of the buyer, a call option is concerned with the ________ of a
Financial asset.

Accepted Answer

A)   purchase
B)   sale
C)   purchase and sale
D)   liquidation

Question 4

In a micro hedge, the hedge is linked directly to a specific asset.

Accepted Answer

A) True 
 B)False  True

Question 5

Which of the following is unique to the cash market, as opposed to the futures market?

Accepted Answer

A)   organized exchanges are used only in the cash market
B)   contracts are standardized only in the cash market
C)   pricing and delivery occur at the same time in the cash market
D)   buyers are insured against losses only in the cash market

Question 6

Another name for a swap in which a dollar fixed-rate loan is swapped for a dollar
Floating-rate loan is a ______ swap.

Accepted Answer

A)   straight
B)   plain vanilla
C)   rate risk
D)   mixed
E)   none of the above

Question 7

Which of the following is NOT one of the steps involved in hedging the interest rate
Sensitivity position of the bank.

Accepted Answer

A)   determine the length of the hedge
B)   determine the depth of the hedge
C)   place the hedge
D)   monitor the hedge
E)   lift the hedge

Question 8

Which of the following hedges is for the entire portfolio of the bank?

Accepted Answer

A)   macro hedge
B)   micro hedge
C)   short hedge
D)   long hedge
E)   none of the above

Question 9

The seller in a futures contract is said to have a:

Accepted Answer

A)   long position
B)   short position
C)   buying position
D)   selling position

Question 10

The difference between the cash and futures price of the financial instrument that is used
For a hedge is known as:

Accepted Answer

A)   spread risk
B)   dollar gap risk
C)   duration gap risk
D)   basis risk
E)   none of the above

Question 11

Futures are most commonly used for long-term adjustments in interest rate risk while swaps usually are used for short term adjustments.

Accepted Answer

A) True 
 B)False

Question 12

Interest rate swaps are intended to:

Accepted Answer

A)   decrease the interest rate risk of the firms involved
B)   decrease the credit risk of the firms involved
C)   decrease the market risk of the firms involved
D)   decrease the liquidity risk of the firms involved

Question 13

If a trader buys a financial futures contract and interest rates rise, the trader will:

Accepted Answer

A)   lose money
B)   make a gain
C)   break even A

Question 14

A long or buy hedge would usually be used if the bank would be harmed in the cash market by rising interest rates.

Accepted Answer

A) True 
 B)False

Question 15

Current accounting procedures for futures contracts are set by:

Accepted Answer

A)   the Federal Reserve Board
B)   Federal Deposit Insurance Corporation
C)   Comptroller of the Currency
D)   All of the above

Question 16

If the margin balance falls below the exchange mandated minimum when trading futures
Contracts, the trader will be required to add funds to the:

Accepted Answer

A)   surplus fund
B)   surplus margin
C)   margin contract
D)   margin account
E)   none of the above

Question 17

If a bank has a negative dollar gap and is short in T-bill futures, if interest rates fall, the _________ in the net interest margin of the bank will be ______ in the T-bill futures.

Accepted Answer

A)   losses/offset by gains
B)   losses/worsened by losses
C)   gains/offset by loses
D)   gains/increased by gains C

Question 18

A bank with a positive dollar gap could buy call options in order to hedge its interest rate risk.

Accepted Answer

A) True 
 B)False

Question 19

Delivery of the underlying financial instrument occurs for most futures transactions.

Accepted Answer

A) True 
 B)False

Question 20

An interest rate cap is a contract that reduces the exposure of a floating rate borrower (or a liability sensitive bank) to increases in interest rates.

Accepted Answer

A) True 
 B)False

Exam 6: Techniques of Assetliability Management: Futures, Options, and Swaps

Mark-to-market is a term in the futures market that means that:

Correct AnswerverifiedShow Answer

Futures contracts are standardized but NOT usually traded on an organized exchange.

Correct AnswerverifiedShow Answer

From the perspective of the buyer, a call option is concerned with the ________ of a Financial asset.

Correct AnswerverifiedShow Answer

In a micro hedge, the hedge is linked directly to a specific asset.

Correct AnswerverifiedTrue

Which of the following is unique to the cash market, as opposed to the futures market?

Correct AnswerverifiedShow Answer

Another name for a swap in which a dollar fixed-rate loan is swapped for a dollar Floating-rate loan is a ______ swap.

Correct AnswerverifiedShow Answer

Which of the following is NOT one of the steps involved in hedging the interest rate Sensitivity position of the bank.

Correct AnswerverifiedShow Answer

Which of the following hedges is for the entire portfolio of the bank?

Correct AnswerverifiedShow Answer

The seller in a futures contract is said to have a:

Correct AnswerverifiedShow Answer

The difference between the cash and futures price of the financial instrument that is used For a hedge is known as:

Correct AnswerverifiedShow Answer

Futures are most commonly used for long-term adjustments in interest rate risk while swaps usually are used for short term adjustments.

Correct AnswerverifiedShow Answer

Interest rate swaps are intended to:

Correct AnswerverifiedShow Answer

If a trader buys a financial futures contract and interest rates rise, the trader will:

Correct AnswerverifiedA

A long or buy hedge would usually be used if the bank would be harmed in the cash market by rising interest rates.

Correct AnswerverifiedShow Answer

Current accounting procedures for futures contracts are set by:

Correct AnswerverifiedShow Answer

If the margin balance falls below the exchange mandated minimum when trading futures Contracts, the trader will be required to add funds to the:

Correct AnswerverifiedShow Answer

If a bank has a negative dollar gap and is short in T-bill futures, if interest rates fall, the _________ in the net interest margin of the bank will be ______ in the T-bill futures.

Correct AnswerverifiedC

A bank with a positive dollar gap could buy call options in order to hedge its interest rate risk.

Correct AnswerverifiedShow Answer

Delivery of the underlying financial instrument occurs for most futures transactions.

Correct AnswerverifiedShow Answer

An interest rate cap is a contract that reduces the exposure of a floating rate borrower (or a liability sensitive bank) to increases in interest rates.

Correct AnswerverifiedShow Answer

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True

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A

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If a bank has a negative dollar gap and is short in T-bill futures, if interest rates fall, the ___ in the net interest margin of the bank will be in the T-bill futures.

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C

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