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TEST BANK for Derivatives Markets 3rd Edition by Robert L. McDonald Updated A+

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TEST BANK for Derivatives Markets 3rd Edition by Robert L. McDonald Updated A+ Chapter 1 Introduction to Derivatives1.1 Multiple Chapter 2 An Introduction to Forwards an d Options. Chapter 3 Insurance, Collars, and Other Strategies Chapter 4 Introduction to Risk Management4.1 Chapter 5 Financial Fo...

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  • October 30, 2023
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  • 9780321543080
  • 2023
  • derivatives markets 3rd edition by robert l mcdon
  • test bank for derivatives markets 3rd edition by r
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Derivatives Markets 3rd Edition by Robert L. McDonald




TEST BANK for Derivatives
Markets 3rd Edition by Robert
L. McDonald




Test Bank Page 1

, Derivatives Markets 3rd Edition by Robert L. McDonald


Fundamentals of Derivatives Markets (McDonald)

Chapter 1 Introduction to Derivatives

1.1 Multiple Choice Questions

1) Which of the following is not a derivative instrument?

A) Contract to sell corn

B) Option agreement to buy land

C) Installment sales agreement

D) Mortgage backed security

Answer: C

2) Who from the following list would be considered a speculator by entering into a futures or

options contract on commodities?

A) Farmer

B) Corn delivery truck driver

C) Food manufacturer

D) None of the above

Answer: B

3) A mutual fund is engaged in the short term and temporary purchase of index futures, for

purposes of minimizing its cash exposures. Which ʺuseʺ most closely explains their actions?

A) Risk management

B) Speculation

C) Reduced transaction costs

D) Regulatory arbitrage

Answer: C

4) During the growing season a corn farmer sells short corn futures contracts in an amount

equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is

then considered a:

A) Hedger

B) Speculator

C) Arbitrager

D) None of the above

Answer: B

Test Bank Page 2

, Derivatives Markets 3rd Edition by Robert L. McDonald


5) All of the following are financially engineered products, except:

A) Mortgage

B) Mortgage backed security

C) Interest only

D) Principal only

Answer: A

6) Select the family member who is offering the most diversification to the rest of the family.

A) Dad works for General Motors

B) Mom works for Goodyear

C) Daughter works for Jiffy Lube

D) Son works for Eli Lilly & Company

Answer: D

7) What is the cost of 100 shares of Jiffy, Inc. stock given that the bid-ask prices are $31.25 -

$32.00 and a $15.00 commission per transaction exists?

A) $3215

B) $3140

C) $3125

D) $3200

Answer: A

8) Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of

$32.00 - $32.50. When you sell the bid-ask prices are $32.50 - $33.00. If you pay a

commission rate of 0.5%, what is your profit or loss?

A) $0

B) $16.25 loss

C) $32.50 gain

D) $32.50 loss

Answer: D


9) Assume that you open a 100 share short position in Jiffy, Inc. common stock at the bid-ask

price of $32.00 - $32.50. When you close your position the bid-ask prices are $32.50 - $33.00.

If you pay a commission rate of 0.5%, calculate your profit or loss on the short investment?

A) $32.50 gain

B) $16.25 loss


Test Bank Page 3

, Derivatives Markets 3rd Edition by Robert L. McDonald


C) $132.50 loss

D) $100.00 gain

Answer: C

10) Assume that you open a 100 share short position in Jiffy, Inc. common stock at the bid-ask

prices of $32.00 - $32.50. When you close your position the bid-ask prices are $32.50 - $33.00.

You pay a commission rate of 0.5%. The market interest rate is 5.0% and the short rebate rate

is 3.0%. What is your additional gain or loss due to leasing the asset?

A) $64.00 loss

B) $160.00 loss

C) $96.00 gain

D) $0

Answer: A

11) Assume that an investor lends 100 shares of Jiffy, Inc. common stock to a short seller. The

bid-ask prices are $32.00 - $32.50. When the position is closed the bid-ask prices are $32.50 -

$33.00. The commission rate is 0.5%. The market interest rate is 5.0% and the short rebate

rate is 3.0%. Calculate the gain or loss to the lender. Assume the lender is not subject to a

bid-ask loss or commissions.

A) $164.00 gain

B) $164.00 loss

C) $100.00 gain

D) $100.00 loss

Answer: A

12) According to trading volume data tabulated for 2002, which international futures exchange

market experienced the highest total trading volume in the world?

A) Chicago Board of Trade

B) Chicago Mercantile Exchange

C) Eurex

D) New York Mercantile Exchange

Answer: C




Test Bank Page 4

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