PMBA 5181 - Exam 2 practice Questions and Answers
2023 with complete solution
A call is said to be "in-the-money" when the strike price is ____________ the
market price.
a.) equal to
b.) greater than
c.) less than
d.) may be more than one of the above, depending on the option premium
less than
An investor striving for maximum contracts will generally buy options that are:
a.) in-the-money
b.) out-of-the-money
c.) deep in-the-money
d.) at-the-money
out-of-the-money
Option trading thrives under volatile pricing conditions and uncertainty.
(true/false)
true
All of the following are advantages of buying call options instead of stock
EXCEPT:
a.) options represent an opportunity to control shares of stock without making a
large dollar commitment
b.) commissions on stock trading are greater than those on options trading
c.) option trading can be considered very conservative and virtually risk-free
d.) all of the above are advantages
option trading can be considered very conservative and virtually risk-free
Cross-hedging refers to the practice of using one form of security to reduce risk
on another form of security. (true/false)
true
Speculators are not significant participants in the commodities markets.
(true/false)
false
A(n) ________ contract is an agreement which provides for the delivery of a given
amount of something at a given time in the future, at a given price.
a.) seasonal
b.) futures
c.) options
d.) none of the above
futures
Assume you have purchased a contract for 25,000 British pounds for $35,000.
Your margin requirement is $2,000. If the value of a pound increases .01, what is
your percentage profit?
a.) 10.0%
b.) 12.5%
, c.) 15.0%
d.) 8.0%
e.) none of the above
12.5%
The difference between speculators are hedgers is that speculators are _______,
while hedgers are ________.
a.) risk-takers; risk-averters
b.) individual investors; financial managers
c.) short term; long-term
d.) none of the above
risk-takers; risk-averters
The difference between the cash market and the futures market is:
a.) that commodity prices cannot be negotiated in the futures market, while they
can be in the cash market
b.) that larger margins are used in the cash market
c.) that in the cash market, there must be a transfer of the physical possession of
the goods
d.) that the commodities are usually less expensive in the futures market
that in the cash market, there must be a transfer of the physical possession of the
goods.
The risk of a short sale is that the stock price
a.) may decrease over time
b.) will remain the same
c.) may increase over time
d.) none of the above
may increase over time
High Frequency traders can often use Dark Pools in order to place their orders.
(true/false)
true
The Securities and Exchange Commission requires firms to submit various
documents to increase the flow of information to investors but does not verify the
accuracy of that information. (true/false)
true
Which of the following types of orders can be used to limit losses from an
anticipated fall in stock price?
a.) market order
b.) immediately sell order
c.) stop loss order
d.) stop buy order
stop loss order
A _______ requires that dividends cannot be paid on common stock until all
current and previously omitted dividends are paid on preferred stock.
a.) residual claim
b.) preferred margin
c.) cumulative provision
d.) liquidation claim
2023 with complete solution
A call is said to be "in-the-money" when the strike price is ____________ the
market price.
a.) equal to
b.) greater than
c.) less than
d.) may be more than one of the above, depending on the option premium
less than
An investor striving for maximum contracts will generally buy options that are:
a.) in-the-money
b.) out-of-the-money
c.) deep in-the-money
d.) at-the-money
out-of-the-money
Option trading thrives under volatile pricing conditions and uncertainty.
(true/false)
true
All of the following are advantages of buying call options instead of stock
EXCEPT:
a.) options represent an opportunity to control shares of stock without making a
large dollar commitment
b.) commissions on stock trading are greater than those on options trading
c.) option trading can be considered very conservative and virtually risk-free
d.) all of the above are advantages
option trading can be considered very conservative and virtually risk-free
Cross-hedging refers to the practice of using one form of security to reduce risk
on another form of security. (true/false)
true
Speculators are not significant participants in the commodities markets.
(true/false)
false
A(n) ________ contract is an agreement which provides for the delivery of a given
amount of something at a given time in the future, at a given price.
a.) seasonal
b.) futures
c.) options
d.) none of the above
futures
Assume you have purchased a contract for 25,000 British pounds for $35,000.
Your margin requirement is $2,000. If the value of a pound increases .01, what is
your percentage profit?
a.) 10.0%
b.) 12.5%
, c.) 15.0%
d.) 8.0%
e.) none of the above
12.5%
The difference between speculators are hedgers is that speculators are _______,
while hedgers are ________.
a.) risk-takers; risk-averters
b.) individual investors; financial managers
c.) short term; long-term
d.) none of the above
risk-takers; risk-averters
The difference between the cash market and the futures market is:
a.) that commodity prices cannot be negotiated in the futures market, while they
can be in the cash market
b.) that larger margins are used in the cash market
c.) that in the cash market, there must be a transfer of the physical possession of
the goods
d.) that the commodities are usually less expensive in the futures market
that in the cash market, there must be a transfer of the physical possession of the
goods.
The risk of a short sale is that the stock price
a.) may decrease over time
b.) will remain the same
c.) may increase over time
d.) none of the above
may increase over time
High Frequency traders can often use Dark Pools in order to place their orders.
(true/false)
true
The Securities and Exchange Commission requires firms to submit various
documents to increase the flow of information to investors but does not verify the
accuracy of that information. (true/false)
true
Which of the following types of orders can be used to limit losses from an
anticipated fall in stock price?
a.) market order
b.) immediately sell order
c.) stop loss order
d.) stop buy order
stop loss order
A _______ requires that dividends cannot be paid on common stock until all
current and previously omitted dividends are paid on preferred stock.
a.) residual claim
b.) preferred margin
c.) cumulative provision
d.) liquidation claim
