IMT SOLVED ASSIGNMENTS AVAILABLE – FINC003 TEST 1
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MCQ 1: You purchased a one month forward dollar from bank in New York on April 9, 2015, Friday. The one month forward settlement date is
a. 10-May-15
b. 11-May-15
c. 12-May-15
d. 13-May-15
MCQ2: The margin deposited with the broker as a replenishment is referred to as
a. Vertical margin
b. Variation margin
c. Maintenance margin
d. Spread margin
MCQ 3: Under the Black-scholes model,_____ is the value the following call option for the following data Stock Price_____ Rs. 220 Strike Price_____ Rs. 210 Time to expiratopn______167days, Risk free interest rate______10% Variance of annual stock returns______20%
a. Rs. 22.89
b. Rs. 21.89
c. Rs. 23.89
d. Rs. 24.89
MCQ 4: A covered call is
a. Simultaneous buying and writing call option at different strike price
b. Simultaneous buying a call and a put option at the same strike price.
c. Buying a call option with a short position in the underlying asset.
d. None of the above
MCQ 5: According to the Black Scholes model, the short term seller receive today price
a. short term cash proceeds
b. proceeds in cheques
c. full cash proceeds
d. Zero Proceeds
MCQ 6: When you buy a call option on any underlying asset by paying Rs. 3 as a premium with strike Rs. 48, the price of the underlying asset should be____ for you to obtain profits?
a. Rs. 49
b. Rs. 50
c. Rs. 51
d. Less then Rs. 51
MCQ7: If the transaction costs are ignored, simultaneous sale of a call and purchase of put at same strike price and expiry gives a pay-off profile identical to
a. Being short on forwards
b. Being long on forwards
c. Selling a put option
d. Buying an option forward
MCQ 8: According to the Black Scholes model, the purchaser can borrow fraction of security at risk free interest rate which is
a. short term
b. long term
c. transaction cost
d. no transaction cost
MCQ 9: The theory of purchasing power parity says that.
a. the inflation rates in two countries are unrelated
b. the exchange rate will adjust to reflect changes in the price levels of two countries
c. the inflation rate is greater than the interest rate
d. the interest rate is greater than the inflation rate
MCQ 10: Which of the following is true?
a. European options can be exercised any time during the life of the contract.
b. American option can be exercised any time during the life of the contract.
c. American option can only be exercised at the maturity date.
d. None of the above
MCQ 11: If the condition is such that the forward price is more than the spot price which strategy is best?
a. Buy Future contract
b. Sell future contract
c. Sell forward contract
d. Buy forward contract
MCQ 12: If ‘A’ and ‘B’ enter the swap contract, the effective interest ‘A’ would be paying each year.
a. LIBOR + 3.5%
b. LIBOR + 3.0%
c. LIBOR + 2%
d. LIBOR
MCQ 13: A short hedge cooccurs when
a. Hedgers seek to eliminate or control the risk exposure that arises due to adverse changes in prices
b. Hedgers seek to eliminate or control the risk exposure associated with the quality that will be bought or sold at some future date
c. A firm that owns or plans to purchase a cash commodity sells futures to hedge their cash position against declining prices
d. A firm purchases to protect itself against a price increase in a commodity prior to purchasing it in either the spot or forward market
MCQ14: According to a survey by Bank of America, the type of foreign exchange risk most often hedged by firms is
a. translation exposure
b. transaction exposure
c. contingent exposure
d. economic exposure
MCQ 15: The effective interest rate ‘B’ would be paying each year
a. LIBOR + 3.5%
b. 13.50%
c. 13%
d. 14%
MCQ 16: Which of the following statements regarding short selling is not true?
a. It is an arbitrage strategy
b. Assets involved are not owned
c. Is possible for all investment assets
d. O2 & 3 both
MCQ 17: An option-market hedge in foreign exchange risk management is a form of a(n).
a. covered hedge
b. open position
c. balance sheet hedge
d. swap
MCQ18: Options are traded in
a. Exchanges
b. Over-the-counter market
c. Both
d. None
MCQ19: Buying and selling call or put option with the same strike price but different expiration dates is called
a. Long hedge
b. Short hedge
c. Horizontal option spread
d. Nearby contract
MCQ 20: Which of the following activities of the risk management process are long-term in nature and do not require constant review?
a. Identification of risk
b. Quantification of risks
c. Policy formulation
d. Monitoring risk levels
MCQ 21: Suppose the price of a share of Google stock is $500. An April call option on Google stock has a premium of $5 and an exercise price of $500. Ignoring commissions, the holder of the call option will earn a profit if the price of the share
a. increases to $504.
b. decreases to $490.
c. increases to $506.
d. decreases to $496.
MCQ 22: A strangle involves
a. Buying a call and a put with same expiration date and different exercise price.
b. Buying a call and a put with same expiration date and same exercise price.
c. Buying a call and a put with same strike price and different maturities
d. Buying two calls at same expiration date and different exercise prices.
MCQ 23: Calculate the present value of bond A whose coupon rate is 7%
a. Rs. 1,000
b. Rs. 1,023.5
c. Rs. 1,034.63
d. Rs. 1,058.89
MCQ 24: A stock index currently stands at $350. The risk-free interest rate is 8% per annum (with continuous compounding) and the dividend yield on the index is 4% per annum. What should the futures price for a four-month contract be?
a. $351.10
b. $354.70
c. $356.80
d. None of above
MCQ 25: In future the guarantee to fulfil the contract is given by
a. The clearing corporation
b. The buyer of the futures contract
c. The seller of the future contract
d. Both the parties to the contract
MCQ 26: Which one of the following is not true?
a. Prices of a call option rises with increase in the value of underlying asset.
b. Prices of a put option rises with increase in the value of underlying asset.
c. Prices of call option rises with increase in time untill expiration
d. All of the above
MCQ 27: You write one AT&T February 50 put for a premium of $5. Ignoring transactions costs, what is the breakeven price of this position?
a. $50
b. $55
c. $45
d. $40
MCQ 28: Top Flight Stock currently sells for $53. A one-year call option with strike price of $58 sells for $10, and the risk free interest rate is 5.5%. What is the price of a one- year put with strike price of $58?
a. $10.00
b. $12.12
c. $16.00
d. $11.97
MCQ 29: A call option has an exercise price of Rs. 15. The spot price of the share is Rs. 19.
a. The option is valuable
b. The option is in the money
c. The option is out of money
d. Both A & B
MCQ30: A straddle consists of
a. Buying a call and selling a put with identical strike rate
b. Writing a call and buying a put with identical expiration date.
c. Buying a call and a put with identical strike rate and expiration date.
d. Buying a call with a farther maturity and writing a put with nearer maturity