DERIVATIVES & ALTERNATIVE INV.

Question 1

notably futures and some options; these are traded in centralized locations and are standardized, regulated and free of default created by dealers or financial institutions.

Answer 1

Exchange-Traded Derivatives

Question 2

Forwards and swaps are ______ contracts, also described as _______, created by

Answer 2

custom; over-the-counter derivatives

Question 3

Over-the-counter derivatives have limited trading in _________ markets and _________ must be considered.

Answer 3

secondary; default (counterparty) risk

Question 4

Interest rate swaps contracts are equivalent to a series of _______ on interest rates.

Answer 4

Forward Contracts

Question 5

Futures contracts are much like _________ contracts, but are ____________ (3).

Answer 5

forward contracts; exchange-traded, liquid, require daily settlement of G/L.

Question 6

valuation of derivatives is based on a no-arbitrage condition with _____, because the risk of a derivative is based on the risk of the __________.

Answer 6

risk neutral pricing; underlying asset

Question 7

what are the 3 replications amond a derivative, its underlying asset, and a risk-free asset?

Answer 7

risky asset + derivative = risk-free asset
risky asset - risk-free asset = -derivative position
derivative position - risk-free asset = -risky asset

Question 8

___________ include merger arbitrage, distressed/restructuring, and special situations strategies that involve long or short posistions in CE, Pref. E, or Debt of a specific corporation.

Answer 8

Event-Driven Strategies

Question 9

The most prevalent type of private equity fund is _______.

Answer 9

Leveraged Buyout Funds

Question 10

Equity hedge funds with a _____ bias, attempt to profit from short positions in equities they believe to be ______valued.

Answer 10

short; over[valued]

Question 11

Funds tht invest in equity of companies, primarily using debt financing are best characterized as:

Answer 11

private equity funds [also this is primarily LBO}

Question 12

A _________ call combines a call option and a bond that pays the exercise price of the call at option expiration.

Answer 12

Fiduciary [call option]

Question 13

____________ stage capital prepares a company for an IPO.

Answer 13

Mezzanine

Question 14

A _______ ________ contract can be settled at expiration only by actual delivery of the asset in exchange for the contract value.

Answer 14

Deliverable Forward [contract}

Question 15

and option’s value is = to the amount of the option is ________.
and the time value is the ________ minus the _________.

Answer 15

in-the-money; market value; intrinsic

NOTE: FINAL VALUE IS THE MARKET MINUS THE SPECIFIED PRICE

Question 16

______ yield is the yield return due to a difference between the spot price and futures price, or a difference between two futures prices with different expition dates, and results from futures prices convergin to the spot price as futures contracts approach their expiration dates.

Answer 16

Roll [yield]

NOTE: may be (+) or (-).

Question 17

Reading “the maximum of zero and the stock price minus the exercise price” is written in math as:

Answer 17

Max (0, S - X)

Question 18

Dividends or interest paid by the asset underlying a call option:

Answer 18

decrease the value of the call options. [value of holding the asset]