Deri Test - TE2

Over time, a forward contract most likely has variable:

• A. value and constant price.
• B. price and constant value.
• C. value and variable price.

If the implied volatility for options on a broad-based equity market index goes up, then it is most likely that:

• A. the broad-based equity market index has gone up in value.
• B. the general level of market uncertainty has gone up.
• C. market interest rates have gone up.

The value of a swap typically:

• A. is non-zero at initiation.
• B. is obtained through replication.
• C. does not fluctuate over the life of the contract.

Valuation of a swap during its life will least likely involve the:

• A. application of the principle of no arbitrage.
• B. use of replication.
• C. investor’s risk aversion.

An at-the-money American call option on a stock that pays no dividends has three months remaining until expiration. The market value of the option will most likely be:

• A. less than its exercise value.
• B. equal to its exercise value.
• C. greater than its exercise value.

If an underlying asset’s price is less than a related option’s strike price at expiration, a protective put position on that asset versus a fiduciary call position has a value that is:

• A. lower.
• B. the same.
• C. higher.

The underlying in a forward rate agreement is most likely a(n):

• A. growth rate of an equity index.
• B. interest rate.
• C. exchange rate.

Which of the following derivatives is least likely to have a value of zero at initiation of the contract?

• A. Futures
• B. Options
• C. Forwards

Holding an asset and buying a put on that asset is equivalent to:

• A. initiating a fiduciary call.
• B. buying a risk-free zero-coupon bond and selling a call option.
• C. selling a risk-free zero-coupon bond and buying a call option.

Which of the following statements is least accurate concerning differences in the pricing of forwards and futures?

• A. Differences in the pattern of cash flows of forwards and futures can explain pricing differences.
• B. Pricing differences can arise if futures prices and interest rates are uncorrelated.
• C. Interest rate volatility can explain pricing differences.