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A weakening of the basis is a consequence of the: A) spot price increasing faster than the futures price over time. B) spot price moving according to hyper-arithmetic Brownian motion. C) futures price moving according to hyper-arithmetic Brownian motion. D) futures price...

How will the value of a portfolio of non-callable corporate bonds hedged with Treasury futures change if the yield curve shifts up in a parallel manner by an anticipated amount? The value of the newly hedged portfolio: A) stays the same. B) may increase or decrease. C)...

Dakshina Refer to Davids update under this link. Will help you to some extent. http://forum.bionicturtle.com/viewthread/65/ Good luck, Avi

A corn grower is concerned that the price he can get from the field in mid-September will be less than he has forecasted. To protect himself from price declines, the farmer has decided to hedge. The best available futures contract he can find is for August delivery. Which of the following is the...

Assume that the short-term interest rate in London is 4 percent and that the short-term interest rate in the US is 2 percent. If the current exchange rate between the euro and dollar is 1=US$1.2217, using the continuous time futures pricing model, what is the price of a three-month futures...

Hi David This is from Market Round 3 Question 16. Please check the below and tell me how is this correct? The formula suggest a subtraction of CoGS, Tax & Cash Expenses. But, as per the solution provided in the quiz only subtracted Tax Outflows. Am I right? Question: Assume Motor Inc...

You are assessing your companys exposure to exchange rate fluctuations. Your immediate concern is the impact of future exchange rate movements on future exports to Europe. This is an example of: A) competitive exposure. B) price exposure. C) contractual exposure. D)...

A U.S.-based company exports consumer goods to Britain and is concerned with the U.S. dollar value of revenue from British sales. A futures hedge is unnecessary if British pound revenues: A) have a correlation with the value of the pound of +0.5. B) are perfectly positively correlated...

Short-dated futures contracts are most effective for hedging which type of foreign exchange exposure? A) Transactions exposure. B) Translation exposure. C) Competitive exposure. D) Quantity exposure. Your answer: A was correct! Transactions exposure is related...

A bank can create an on-balance-sheet hedged position by matching: A) domestic and foreign cash rate exposure on its balance sheet. B) domestic and foreign inflation rate exposure on its balance sheet. C) domestic and foreign market value positions on its balance sheet...

The role of creditors and counterparties in the private pool market: A) are losing their importance so the PWG no longer addresses their activities. B) is becoming increasingly important and their activities are specifically addressed by the PWG. C) have never been important...

Which of the following risks is most likely to be greater when selling a complex product to a retail investor instead of an institutional investor? A) Reputational risk. B) Liquidity risk. C) Legal risk. D) Credit risk. Your answer: A was correct! Selling...

Which of the following describes the most effective means to address the industry-wide problem of unsigned confirmations for credit derivatives? A) Eliminate the practice of trade assignments. B) Straight-through processing. C) Pre-trade reviews. D) Use of collateral...

Which of the following is NOT one of the three traits common to past major financial shocks? A) A lack of market liquidity. B) A sharp decline in asset prices due to a triggering event. C) Reliance on overly complex pricing models. D) Leverage concerns. Your...

Which of the following is the most effective way to address differences in counterparty credit quality? A) Establishing initial margin requirements. B) Including a force majeure provision in a derivative transaction. C) Using netting arrangements. D) Using sophisticated...

Risk management: A) exacerbates the need for a firm to hold a reserve of liquid assets. B) has no effect on the need for the firm to hold liquid assets. C) is a substitute for investing equity capital in liquid assets. D) has no impact on the expected costs of financial...

The primary function of corporate risk management is to: A) optimize the level of a firms nondiversifiable risk. B) minimize diversifiable risk. C) reduce the likelihood of a hostile takeover. D) protect the companys strategic plan. Your answer: D was correct...

On the NYMEX, natural gas futures are available with maturities: A) from one to 60 months for every month. B) from one to 36 months for every month. C) from one to 60 months, but only for the months of March, June, September, and December. D) from one to 36 months, but...

The returns in the natural gas futures market in September 2006, which seem to have been responsible for the Amaranth debacle, were: A) very positive, but they were within a standard confidence interval based upon historical data. B) very negative and they were outside a standard...

Balance sheet leverage measures the: A) amount of borrowing by firms whose debt or equity held in a portfolio. B) total leverage faced by a hedge fund investing in derivative securities. C) value of a portfolios equity in relation to the value of the assets. D)...