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What of the following cannot be a value of the gamma of this contract?
The LIBOR square swap offers the square of the interest rate change between contract inception and settlement date. If LIBOR at inception is y, and upon settlement is x, the contract pays (x - y)2 for x > y; and -(x - y)2 for x < y. What of the...
In terms of notional values traded, which of the following represents the largest share of total traded futures and options globally?
In terms of notional values traded, which of the following represents the largest share of total traded futures and options globally?A . interest rate productsB . commoditiesC . foreign exchange futures and optionsD . equity futures and optionsView AnswerAnswer: D Explanation: Equity futures are by far the most traded futures...
Which of the following statements are true:
Which of the following statements are true: I. A deep in-the-money call option has a value very close to that of a forward contract with a forward price equal to the exercise price II. If the volatility of a stock goes down to zero, the value of a call option...
If the spot price for a commodity is lower than the forward price, the market is said to be in:
If the spot price for a commodity is lower than the forward price, the market is said to be in:A . contangoB . backwardationC . a short squeezeD . disequilibriumView AnswerAnswer: A Explanation: When the forward prices are greater than the spot prices, the market is said to be in...
Which of the following payments will happen in respect of this swap, assuming the contract notional is $100m, and the rate convention is 30/360?
A bank sells an interest rate swap to its client, with the client agreeing to pay the bank a fixed 4% and receive 3 month LIBOR + 100 basis points, payments due every quarter. After quarter 1, the 3 month LIBOR is 2% pa. Which of the following payments will...
For an investor short a bond, which of the following is true:
For an investor short a bond, which of the following is true: I. Higher convexity is preferable to lower convexity II. An increase in yields is preferable to a decrease in yield III. Negative convexity is preferable to positive convexityA . I and IIB . II and IIIC . I,...
An investor expects stock prices to move either sharply up or down.
An investor expects stock prices to move either sharply up or down. His preferred strategy should be to:A . buy a butterfly spreadB . buy a condorC . buy a collarD . buy a straddleView AnswerAnswer: D Explanation: Straddles and strangles are strategies that would benefit from sharp movement in...
Which of the following statements is false:
Which of the following statements is false: A. The value of an FRA at expiration is determined by the spot interest rate prevailing at expiration B. The value of an FRA (forward rate agreement) at inception is zero. C. An FRA can be valued at anytime in its lifetime using...
Which of the following statements is true in relation to an American style option:
Which of the following statements is true in relation to an American style option: I. Put-call parity applies to American options II. An American put will never be cheaper than a European put III. An American put option should never be exercised early for a non-dividend paying stock IV. An...
A normal yield curve is generally:
A normal yield curve is generally:A . FlatB . HumpedC . Downward slopingD . Upward slopingView AnswerAnswer: D Explanation: A normal yield curve is generally upward sloping. Downward sloping, humped or flat yield curves are less common and indicate exceptional market conditions.
