Incorrect Answers: CISI Flashcards
When creating a hedge using futures, how can a trader avoid basis risk?
By holding the future until maturity.
In a Bull Put Spread, where the strikes are 550 and 600 with a premium credit of 22, what is the maximum profit?
22
The exchange price feed for a particular future includes the identifier Q. What does this indicate?
The delivery month.
What is the name used for a product that can be used to portect the cost of floating rate borrowing over a series of settlement periods?
A cap.
What role does Gamma play when Delta Hedging a Portfolio?
It represents the adjustment, that is required to hedge.
How would an investor create a synthetic floating rate note using an asset swap?
By buying an underlying fixed-rate investment, while paying fixed but receiving floating in the swap.
A nationally-licesnsed deriavtives exchange is best described as what body?
A self-regulatory organisation.
In the US, who regulates all On-exchange derivatives not covered by the SEC?
CFTC
Who regulates currency options on the CME?
CFTC
What is the role of the national futures association?
To provide regulatory programmes.
For What Reason have Commodity Swaps Grown in Popularity in Recent Years?
Ch.1
Increased demand for hedging due to market volatility.
What will the holder of the fixed leg of a dividend swap pay the receiver?
Ch.1
A pre-designated fixed payment at each interval.
How are payments structured for an Interest rate swap on each payment date?
Ch.1
A net payment is made, from the difference between a floating rate and a fixed rate.
Why might a company use a roller coaster swap?
Ch.1
To match their seasonal borrowing requirements.
What is the key factor that allows futures to be such highly geared investments?
Ch.1
The inital and maintenance margins that the exchange requires.
Which metal is likley to be affected, by a decrease in the demand for catalytic converters?
Ch.2
Platinum.
Where the spot bid price for USD/JPY is 112.55 and the 3 month outright rate is 112.05, this indicates that?
Ch.2
There is a discount for forward delivery.
What does the holder of a CD receive on redmeption?
Ch.2
Full face value plus the specified interest rate.
What is one of the main reasons a company would use a NDF (Non deliverable forward)?
Ch.2
Hedge an FX exposure in a currency that is not fully convertible.
What is a common characteristic of a CD?
What maturities?
Ch.2
They are usually issued with 3 or 6 month maturities?
How does the Gordon Growth model calculate the value of a share?
Ch.2
By discounting future dividends back to a present value.
Are Norweigan OBX Index futures traded in the LSE derivatives exchange?
Ch.3
Yes
An index is standing at 766, using a long straddle, where both options have an exercise of 740.
What is the intrinsic value?
Ch.3
Long call - 26
Long Put - 0
IV = 26
When calculating the Fair Value of a forward contract on a FTSE 100 share, what would a trader need to consider?
Ch.3
The difference between the current interest rate the shares dividend yield.
