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. TrueFalse Flag this QuestionQuestion 21 ptsIf one needs to buy in t

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

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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

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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

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Question 41 pts

The contract size of Euro FX futures is 125,000 Euros.

True

False

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Question 51 pts

Standard deviation is a measure of risk. 

True

False

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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

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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

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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

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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.

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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