Test 2 derivatives

A deferred swap is also called a European swap.

Fales

A bank's duration gap equals the duration of its assets minus the duration of its liabilities.

False

A business that needs a particular commodity in the near futures could logically use a short hedge to get it

False

A combined interest rate and currency swap is known as a clown swap

False

A portfolio of stock combined with a long position in futures can become a Treasury bill equivalent

False

According to one market survey the most common corporate use of derivatives is to access foreign equity markets.

False

An interest rate cap contains on or more caplets and at least one floorlet.

False

An interest rate cap is more similar to a put option than to a call option

False

An interest rate collar is the simultaneous holding of a long cap and a long floor.

False

Changes in the treasury bill rate do not usually affect the basis in a stock index futures contract.

False

Delivery of stock certificates on the S&P 500 stock index futures contract occurs via wire transfer of the shares than physical delivery.

False

Foreign exchange risk represents the chance of default by a foreign lender.

False

Forward contracts are marked to market in the same manner as a futures contract

False

Futures Markets typically work best when there are relatively few speculators.

False

Futures contracts are marked to market weekly

False

If a currency weakens relative to another, it buys more of the foreign currency.

False

Most stock index futures contracts trade at the New York Stock Exchange

False

Nearly 65% of global stock market capitalization comes from the United States.

False

Open interest is a measure of how many contracts traded on a particular day

False

The first payment on an interest rate swap is based on the principal amount , while the last payment is based on the notional amount.

False

The swap buyer pays the floating rate.

False

The swap clearinghouse serves the same purpose as the Option Clearing Corporation with listed options.

False

The swap tenor refers to the fixed interest rate.

False

To take advantage of differentials in the credit market, a firm should borrow in the market in which it has an absolute advantage rather than a comparative advantage.

False

Unlike options, a futures spread is usually riskier than a single futures position

False

A change in a country's interest rates usually results in a change in the forward discount or premium of that country's currency on the global market.

True

A direct foreign exchange quotation is the inverse of and indirect foreign exchange quotation.

True

A firm that writes a floor will probably have to pay out cash if interest rates decline sharply.

True

A forward contract is more similar to a futures contract than an options contract

True

A forward exchange rate may be more or less than the spot exchange.

True

A major difference between a currency swap and an interest rate swap is that principal is exchanged in a currency swap while it is not in a interest rate swap.

True

A payer swaption gives its owner the right to pay the fixed rate.

True

A plain vanilla interest rate swap is sometimes called a fixed for floating rate swap.

True

A portfolio manager is more concerned with economic foreign exchange exposure than with accounting foreign exchange exposure.

True

A trader who receives a market variation call has one hour to put money into his or her account

True

All Participants in the futures market must post a good-faith deposit on which they can earn interest

True

An SPX hedge ratio accounts for both risk and size differentials.

True

As time passes the basis of a stock index futures contract approaches zero.

True

Basis is the difference between the futures price and the cash price

True

Forward rates reflect differences in national interest rates.

True

If a futures contract is limit up, trading essentially stops for the day

True

If a trader has an out trade, he or she receives an unmatched trade notice

True

In some respects, speculators perform the same function as insurance companies

True

In the market maker system at the futures exchanges, trades occur by open currency

True

Program trading relies on computerized trades via the Super-DOT system

True

Property rights cannot be transferred with futures contracts

True

Purchasing power parity states that in a world of perfect markets the same good should sell for the same price in different countries.

True

Putting on a crush involves buying soybeans and selling soybean oil and meal

True

Rather than having an expiration date like an option, a futures contract has a delivery date.

True

Scalpers provide liquidity to the market

True

The S&P 500 stock index is capitalization-weighted

True

The SPX futures contract size is $250 times the index level.

True

The concept of normal backwardation suggests that the future cash price will be slightly higher than predicted by expectations hypothesis

True

The futures market is not designed to provide protection against crop failure

True

The futures price for a stock index futures contract is usually grater than the cash index.

True

The interest rate parity theorem states that differences in national interest rates will be reflected in the currency forward market.

True

The modern swaps market is less than 30 years old

True

The nominal rate equals the real rate plus a risk premium plus an inflation premium

True

The spot price is the same as the cash price for a currency.

True

The term exchange of borrowings normally refers to a currency swap rather than an interest rate.

True

Unexpected inflation causes the value of the home currency to fall.

True

The Securities and Exchange Commission regulates commodities trading

false