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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TEST BANK FOR DERIVATIVES MARKETS THIRD EDITION BY ROBERT L. McDonald
TEST BANK for Derivatives Markets 3rd Edition by Robert L. McDonald. ISBN 9780133468786. All Chapters 1-27.
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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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