Exam (elaborations) MSCFE 560 0 Financial Markets (C21-S3) ▶ Module 6: Futures, Options and Derivatives ▶ Quiz M6

Consider the following statements: Statement A: Cash settled forward contracts are always exchange traded. Statement B: Forwards can be customized more so than futures. Which of the statements given above is correct? Select one: Both statement A and B Only statement B  Neither statement A nor B Only statement A This study source was downloaded by from CourseH on :12:17 GMT -05:00 8/8/2021 Quiz M6 Question 2 Correct Mark 1.00 out of 1.00 How does a call option differ from a forward contract? Select one: A call option’s agreed price tends to be more favorable for the long party. A call option obligates the long party to always exercise their option. A call option allows the long party can choose the date of the agreed trade. A call option allows the long party to choose whether or not to buy an asset.  Question 3 Correct Mark 1.00 out of 1.00 When the Black-Scholes-Merton and binomial tree models are used to value an option on a non-dividend-paying stock, which of the following is true? Select one: The binomial tree price converges to the Black-Scholes-Merton price as the number of time steps is increased  Either A or B can be true The binomial tree price converges to a price slightly above the Black-ScholesMerton price as the number of time steps is increased The binomial tree price converges to a price slightly below the Black-ScholesMerton price as the number of time steps is increased This study source was downloaded by from CourseH on :12:17 GMT -05:00 8/8/2021 Quiz M6 Question4 Correct Mark 1.00 out of 1.00 Consider the following statements: Statement A: Forwards and futures are useful because they provide positive or negative exposure to the underlying. Statement B: Futures contracts can be physically settled or cash settled. Which of the statements given above is correct? Select one: Both statement A and B Only statement B Neither statement A nor B Only statement A  Question 5 Incorrect Mark 0.00 out of 1.00 Consider the following statements: Statement A: A speculative position is a position that lowers your overall market risk. Statement B: Over-the-counter derivatives can often involve credit risk. Which of the statements given above is correct? Select one: Both statement A and B  Only statement B Only statement A Neither statement A nor B This study source was downloaded by from CourseH on :12:17 GMT -05:00 8/8/2021 Quiz M6 Question 6 Incorrect Mark 0.00 out of 1.00 Consider the following statements: Statement A: Equity derivatives trade in the equity markets. Statement B: The short party to a forward contract has to allow the long party to choose the delivery date. Which of the statements given above is correct? Select one: Only statement A  Only statement B Both statement A and B Neither statement A nor B Question 7 Correct Mark 1.00 out of 1.00 If the volatility of a non-dividend-paying stock is 20% per annum and a risk-free rate is 5% per annum, which of the following is closest to the parameter p for a tree with a three-month time step? Select one: 0.54  0.58 0.62 0.50 This study source was downloaded by from CourseH on :12:17 GMT -05:00 8/8/2021 Quiz M6 Question 8 Correct Mark 1.00 out of 1.00 Which of the following positions are best suited to “hedging the downside, but keeping the upside”? Select one: an option  a forward a holding in the underlying asset a short holding in the underlying asset Question 9 Correct Mark 1.00 out of 1.00 Consider the following statements: Statement A: A call option is a variation of a long forward contract. Statement B: The underlying asset of a put option has a negative exposure to the market. Which of the statements given above is correct? Select one: Only statement A  Neither statement A nor B Both statement A and B Only statement B