Fin 384 Final -- Philpot Certification Review Exam Questions With Detailed Answers.
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Course
FIN.
Institution
FIN.
Derivative security - correct answer A security that derives its value from the value of some other underlying asset
When the value of the underlying asset in a derivative security changes... - correct answer The value of ...
Derivative security - correct answer A security that derives its value from the value
of some other underlying asset
When the value of the underlying asset in a derivative security changes... - correct answer
The value of the derivative security itself changes
Cash market - correct answer The market for the actual underlying asset
In the cash market, assets trade at their___? - correct answer Spot price
Derivatives market - correct answer the market for the derivative security
The major use of derivative securities is___? - correct answer Hedging
Hedging - correct answer The use of derivatives in order to reduce or eliminate
price risk
Hedgers hold a position in the______ market? - correct answer Cash
If you own the physical asset being traded you are ___ in the cash market? - correct answer
Long
If you do not own the physical asset being traded but will be purchasing it later, you are _____ in the
cash market? - correct answer Short
Speculation - correct answer The use of derivatives to take price risk with the hope
of profit
, Speculators do NOT hold a position in the cash market. T/F? - correct answer True
What are the four major types of derivative securities? - correct answer Forwards
Futures
Options
Swaps
Forward contract - correct answer A contract for the sale/purchase of an asset at a
specified price with settlement taking place at a future date
Forwards are often used with _____ and _____? - correct answer Foreign currencies
Agricultural commodities
Almost all derivative securities offer ____ settlement. - correct answer Cash
Cash settlement - correct answer When the contract comes due, we don't need to
buy/sell the actual asset; we only need to settle the difference in cash
Futures contract - correct answer Same as forward contract except futures are
standardized and trade on an exchange
Forwards trade ____ and futures trade____? - correct answer OTC
On exchange
To successfully hedge, an investor would take an ______ position in the futures market from that held in
the cash market. - correct answer Opposite
A farmer predicts he will grow 350K bushels of beans in September, but is afraid the price will fall. The
CBT offers a September beans contract that calls for delivery of 5K bushels in September. Right now
(July) the specified futures price = $4.50 per bushel. How many contracts will the farmer short to protect
against a loss? - correct answer 350, = 70 September futures contracts at
$4.50 per bushel
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