Introduction to Derivatives and Risk Management, 11th Edition Test Bank – Chance & Brooks

Introduction to Derivatives and Risk Management, 11th Edition
Don M. Chance, Robert Brooks


TEST BANK

Includes All Chapters (1 to 15)


What’s Included?

• Complete Chapter-by-Chapter Test Bank

• Multiple Choice Questions (MCQs) with Answers & Explanations (All Chapters)

• True / False


Complete Test Bank includes 900 questions - Updated Exam Questions

,Chapter 1 - Introduction
True / False

1. Options, forwards, swaps, and futures are financial assets.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives: options, forward
contracts, futures contracts, and swaps.
NATIONAL STANDARDS: United States - BUSPROG: Analytic
KEYWORDS: Bloom’s: Remember

2. A risk premium is the additional return investors expect for assuming risk.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play through their four
main advantages.
KEYWORDS: Bloom’s: Remember

3. Derivatives permit investors to manage their risk more efficiently.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives: options, forward
contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember

4. The law of one price states that the price of an asset cannot change.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.4 - Fundamental Linkages Between Spot and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.04 - Explain the relationship between spot and derivative markets
through the mechanisms of arbitrage, storage, and delivery.

Page 1

,Chapter 1 - Introduction

KEYWORDS: Bloom’s: Remember

5. Derivative markets make stock and bond markets more efficient.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.05 - Identify the role that derivative markets play through their four
main advantages.
KEYWORDS: Bloom’s: Understand

6. Swaps, like options, trade on organized exchanges.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives: options, forward
contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember

7. The theoretical fair value is the only value an asset can have.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.03 - Define the important concept of theoretical fair value, which
will be used throughout the book.
KEYWORDS: Bloom’s: Understand

8. Short selling is a high risk activity.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short selling, repurchase
agreements, the risk–return relationship, and market efficiency.
KEYWORDS: Bloom’s: Understand
Page 2

, Chapter 1 - Introduction
9. Uncertainty of future sales and cost of inputs are examples of financial risks businesses may face.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.3 - Important Concepts in Financial and Derivative Markets
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.02 - Review the concepts of risk preference, short selling, repurchase
agreements, the risk–return relationship, and market efficiency.
KEYWORDS: Bloom’s: Understand

10. A call option on a futures contract gives the buyer the right to buy a futures contract.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives: options, forward
contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember

Multiple Choice

11. Cash markets are also known as
a. speculative markets.
b. spot markets.
c. derivative markets.
d. dollar markets.
e. equity markets.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
REFERENCES: 1.1 - Derivative Markets and Instruments
LEARNING OBJECTIVES: IDRM.CHANCE.27.01.01 - Explain the different types of derivatives: options, forward
contracts, futures contracts, and swaps.
KEYWORDS: Bloom’s: Remember

12. A call option gives the holder
a. the right to buy something.
b. the right to sell something.
c. the obligation to buy something.
d. the obligation to sell something.
e. the right to sell something and the obligation to buy something.
ANSWER: a
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