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Questions in this quiz (91)
1The futures markets absorb information and help the market players in the process of _____.
- Aarbitrage
- Btransparency
- Cregulatory oversight
- Dprice discovery
2There are certain risks involved in hedging in the forward or futures market. Which of the following is true?
- Aa) Futures contracts have no counterparty risk, only the risk of the exchange, while forward contracts carry the credit risk of the counterparty
- Bb) Futures contracts have both mismatch risk and basis risk
- Cc) Forward contracts have the risk of the exchange
- Dd) a and b only
3Which of the following statements about forwards and futures contracts is TRUE?
- AFutures are traded on an organized exchange
- BFutures contracts have settlement terms which may vary for each contract
- CInvestors in futures contracts are exposed to significant counterparty risks
- DForward contracts have an active secondary market
4Which of the following statement is true about futures contracts
- AFutures contracts can cater to any forward dates that a trader/hedger desired
- BOnce the futures contract reaches its final settlement date, the contract can be settled by cash or physical delivery of the underlying products
- CFutures contracts do not have an expiry date
- DAll of the above
5Which of the following order types are available SGX
I. Limit order
II. Market if touch order
III. Volume weighted average price order
IV. Session State Order- AI and II
- BII and III
- CI, II and IV
- DAll of the above
6The SGX-DC has mutual offset arrangement with which of the following exchanges?
- AChicago Mercantile Exchange
- BEuronet exchange
- CNYSE Euronext
- DTokyo International Financial Futures Exchange
7Currently the following SGX-DT products are eligible for mutual offset with CME, EXCEPT
- AEurodollar Futures (ED)
- BEuroyen (TIBOR) Futures (EY)
- CCNX Nifty Index Futures (IN)
- DCNX China Index Futures (CN)
8Which of the following theories posits that futures prices are basically the expected spot prices of the underlying asset in the future?
- ABackwardation and Contango theory
- BCash and carry arbitrage theory
- CExpectancy model
- DTime value of money concept
9Spot price of USD/SGD is 1.39, the annual interest rate in the USA 5% and that in Singapore 3%. What is the theoretical price of a 1-year forward USD/SGD contract?
- A1.4178
- B1.4170
- C1.3635
- D1.3627
10Changes in the TED spread can provide an indication for which of the following risks?
- AInterest rate risks
- BVolatility risk
- CCredit risk
- DCorrelation risk
11Which of the following can be considered as an indicator of an increase in the default risk in the financial markets
- ANarrowing butterfly spread
- BNarrowing calendar spread
- CWidening condor spread
- DWidening TED spread
12A local company wishes to take 6-month USD 50 million loan from an American bank in 5 months' time (i.e., in September). Currently, the 6-month USD lending rate is 1.65%. The September and December Eurodollar futures are 98.25 and 98.10 respectively. 5 months later, the 6-month USD lending rate rises to 2.15%. The September and December Eurodollar futures are 97.85 and 97.45 respectively. Assuming the company intends to fully hedge his interest rate exposure via September futures contract, calculate the number of contracts he needs to execute:
- A25
- B50
- C100
- D150
13A local company wishes to take a 6-month USD 50 million loan, and the prevailing 6-month USD lending rate is 2.15%. The September Eurodollar futures is trading at 98.15. At the time of entering the hedge, the price of September Eurodollar futures is 98.65. Assuming the interest rate on the loan is correlated one-to-one with the Eurodollar, and company intends to fully hedge its interest rate exposure using September futures, calculate the number of contracts that will be needed to execute the hedge?
- A25
- B50
- C100
- D150
14A fund manager sells the relevant equity index contracts to offset his long cash positions in the equity market. This is an example of _____.
- Abasis trading
- Bhedge trading
- Coutright trading
- Dspread trading
15Based on the following information, calculate the number of futures contracts that an investor should sell for a delta-neutral hedge. Portfolio value of $100 million. Price of each futures contract is $200,000 and the hedge ratio is 0.5.
- A100
- B250
- C500
- D1,000
16_________ is NOT a type of hedge.
- AStrips and stacks
- BMatching hedge
- CExtrapolative hedge
- DInterpolative hedge
17A trader expects that the Japanese Yen will reverse its recent course and decline in the coming months. Given that the current level of 3-month US and Japan interest rates in the money markets are 2% and 0.25% respectively, which of the following choices would the trader pick? (Assume other factors are not concern.)
- ABuy USD/JPY in the foreign exchange market at 82.20 for spot delivery
- BBuy a JPN YEN currency futures Sep 12 contract at 0.012295
- CSell a JPN YEN currency futures Sep 12 contract at 0.012265
- DSell USD/JPY in the foreign exchange market at 82.20 for spot delivery
18Which of the following statement about Over-the-Counter (OTC) options and exchange-traded options is TRUE?
- AOTC options have stronger government and industry oversight compared to exchange-traded options
- BOTC options have higher degree of counterparty risk compared to exchange-traded options.
- COTC options are more liquid as compared to exchange-traded options
- DThere is greater price transparency in OTC options as compared to exchange-traded options
19An option contract has finite life and will lapse at the expiration date. ______ Options can only be exercised on the expiration date. For ______ options, the option holders can exercise their right at any time before expiration
- AEuropean, American
- BAmerican, European
- CIn-the-money, Out-of-the-money
- DOut-of-the-money, In-the-money
20An option's value depends on the underlying asset's price. An option's price consists of two parts.
- AOption price = Intrinsic Value + Time Value
- BOption price = Intrinsic Value + Strike Price
- COption price = Strike Price + Time Value
- DOption price = Time Value - Intrinsic Value
21Which of the following is/are correct?
I. For a call: Intrinsic Value = Current Market Price - Option Strike Price
II. For a put: Intrinsic Value = Option Strike Price - Current Market Price
III. For a call: Intrinsic Value = Current Option Price - Option Strike Price
IV. For a put: Intrinsic Value = Option Strike Price - Current Option Price- AI and II only
- BI and IV only
- CII and III only
- DIII and IV only
22In which of the following cases will the value of a put option decrease? All other factors being equal, when there is a decrease in the ____________.
- AExercise price
- BVolatility of the underlying share
- CTime to expiration
- DAll of the above
23If the premium of a Nikkei 225 option changes by 5 point as the result of a 10 point change in the price of Nikkei 225 futures contract, the delta of the option is
- A0.05
- B0.20
- C0.50
- D1.00
24Calculate the breakeven price for a put holder based on the following information. Spot price of the share is $100. Price of the put option purchased for strike price of $100 is $5. The stock price rises to $110 on the expiry date.
- A$95
- B$115
- C$105
- D$90
25If an investor has a bearish market outlook, which of the following strategies would be suitable for him?
- APurchase of a yield enhanced note
- BCall warrant purchase
- CPurchase of an index-linked note
- DPut warrant purchase
26A spread that is constructed using options on the same underlying security, with the same strike price, but with different expiration dates is referred to as a _____.
- Adiagonal spread
- Bsynthetic spread
- Cvertical spread
- Dhorizontal spread
27The terms in-the-money and at-the-money refer to the ____ of an option.
- Adelta
- Bbreakeven point
- Cmoneyness
- Dput-call parity
28A warrant is trading at $0.40. The exercise price is $0.80. The share price is $2.40. What is it's gearing? (Assume that the warrant is company-issued, in practice they all have a conversion ratio of 1, unless otherwise stated)
- A2x
- B6x
- C3x
- D5x
29Calculate the effective gearing of a put warrant based on the following information. Exercise price = $10, Warrant price = $1.50, Delta = 20%, Gearing ratio = 5.0
- A1 time
- B2 times
- C3 times
- D5 times
30Calculate the conversion price of a call warrant based on the following information. Market price of the underlying = $100, exercise price = $105, warrant price = $2, and conversion ratio = 3
- A$111
- B$102
- C$106
- D$94
31Company A's warrant is trading at $0.35, its exercise price is $0.50 while the share price is $0.65. What is its intrinsic value?
- A$0.85
- B$0.15
- C$0.30
- D$1.00
32Which of the following statements about company warrants is TRUE?
- AThey are long-dated European exercise style options
- BThey cannot be detached or traded separately from the host instrument
- CThey usually have a longer maturity as compared from the host instrument
- DCompany warrant holders are entitled to received dividends paid by the underlying shares
33Which of the following statements about foreign exchange (FX) warrants is TRUE?
- AThey are physically settled
- BThey are not leveraged instruments
- CThe price of a FX warrant depends on the change in the exchange rate between the two underlying currencies
- DFX warrants are suitable only for investors who have a neutral view on the exchange rates between the underlying currencies
34Which of the following statement about structured products is TRUE?
- AStructured products must have minimum two derivatives
- BThe demand for structured products has increased due to high volatility in the financial markets
- CStructured products are considered a traditional investment asset class just like bonds or futures
- DWhen interest rates are persistently low, it reduces the demand for structured products
35A fixed income instrument is usually used as the principal component of a structured product because
- Ait protects a part of the investment capital from loss
- Bit enhances the potential for capital appreciation
- Cit gives investors the opportunity to invest in higher-yield bonds
- Dit leads to a longer investment horizon for the investors
36Which of the following statements about a structured product with a long zero-coupon bond and a long call option is FALSE?
- AThe zero coupon bond provides a degree of capital preservation
- BThe long call provides the returns component
- CInvestors are subject to significant risks related to the mark-to-market from time to time till maturity
- DParticipation rate should be considered to assess the return potential of the product
37Which of the following strategy in a structured product will NOT guarantee the return of principal at maturity?
- AA constant Proportion Portfolio Insurance (CPPI) strategy
- BA Dynamic Proportion Portfolio Insurance (DPPI) strategy
- CA physical asset plus a short knock-out option strategy
- DA zero-coupon bond plus a long call option strategy
38Which of the following statement is TRUE of Constant Proportion Portfolio technics?
- AThe difference between the total portfolio value and the floor value is known as the cushion
- BThe maximum multiplier value is one
- CThe floor value is never a concern in determining the allocation percentage
- DCrash Size is the average percentage drop in underlying asset value over one year
39A structured note with the Constant Proportion Portfolio Insurance technics allocates between a commodity fund and 5 years US treasury. Given that one day 1, the cushion value of the note is 15% and he crash size of the commodity fund in one allocation period is 33.3%. Calculate the percentage allocation to the 5 years US treasury on day 1
- A55%
- B100%
- C75%
- D33.3%
40Which of the following aspects must be considered by financial advisers before recommending a structured product to clients?
I. Risk appetite of client
II. Time horizon of the client
III. Liquidity requirements of the client- AI only
- BII only
- CI & III
- DI, II & III
41Which of the following will result in having the highest percentage allocated to the risky assets?
- ACrash size 20%, Cushion value 25%
- BCrash size 30%, Cushion value 39%
- CCrash size 23%, Cushion value 26%
- DCrash size 26%, Cushion value 30%
42Which of the following statements about structured notes is FALSE?
- AThe note holders have a claim on the underlying instruments
- BThe notes can have structures which link coupon payments, principal repayment, or both to the performance of the underlying instrument
- CThe notes can have credit default swaps (CDSs) as underlying instrument
- DThe notes are marked-to-market periodically until maturity
43Which of the following statements about structured notes issued by special purpose vehicles (SPVs) is TRUE?
- AThe collateral held by the SPV will always enable the bank to guarantee the principal sum to the note holders
- BThe SPV is a separate legal entity set up by the bank to specifically manage the transactions and the legal liabilities related to the note issuance
- CThe SPV is a direct subsidiary of the bank, and the bank is fully liable to the note holders for the returns and principal sum
- DThe SPV's liabilities from the note issuance are reflected in the balance sheet of the bank
44Calculate the maturity payout value for an investor who invest $100,000 in an index-lined structured deposit with a participation rate of 20% of the index performance. The index value rises from 10,000 points to 12,000 points by the maturity date. The principal payment is guaranteed at maturity.
- A$100,000
- B$104,000
- C$108,000
- D$120,000
45_____ are constructed based on the credit default swaps linked to one of more reference entitles.
- ACredit-linked notes
- BParticipatory notes
- CAccess notes
- DEquity linked notes
46Which of the following structured products DOES NOT have an embedded short put option written by the holder?
- AAccumulators
- BBond-linked notes
- CFirst-to-default credit-linked notes
- DZero coupon plus option note
47Which of the following statements about structured products is TRUE?
- AAuto-callable structured products usually offer lower yields to investors
- BAuto-callable structured products can only be constructed using American-type barrier options and not with Bermudan options
- CStructured products with barrier options have uncertain maturities and greater reinvestment risk
- DA plain vanilla financial product and a structured product have similar volatility risk if the underlying assets are the same
48How are derivatives used within a structured fund?
I. Derivatives are used to synthetically track/replicate the performance of the underlying(s)
II. Derivatives are used to provide a return linked to the underlying asset of the fund
III. Derivatives are used to protect capital of the fund- AI only
- BI & II
- CII & III
- DI, II & III
49If an investor wants to participate in the upside potential of equities in a stock market, which of the following methods would lead to the HIGHEST active management and transaction cost?
- APurchase of the relevant equity index futures
- BPurchase of the relevant equity index options
- CPurchase of an ETF tracking the relevant equity index
- DPurchase of all the shares comprising the relevant equity index
50A fund management company has one long only fund and one long-short fund. Both the funds are registered in the same country and have the same internal fund management processes. These two funds could differ the MOST in their _____.
- Agovernance
- Bstructures
- Cregulatory requirement
- Dinvestment strategies
51If one compares ETFs with mutual funds, which of the following statements is TRUE?
- AETF can only be bought at the end of the day NAV, whereas mutual funds allow intraday trading
- BETFs are more liquid as they offer primary and secondary liquidity
- CMutual funds are not subject to regulatory oversight
- DMutual funds are less volatile because the underlying assets are less volatile
52Which among the following products is likely to have MAXIMUM tracking error?
- AAn exchange-traded commodity produced based on physical silver
- BAn exchange-traded note based on the synthetic replication of an equity index futures
- CA synthetic replication ETF based on the Nikkei 225
- DA synthetic replication ETF based on the S&P 500
53Which of the following factors DOES NOT directly impact the returns from a structured fund?
- APayout structure
- BUnderlying assets
- CDomicile
- DTime to maturity
54Which of the following measures CANNOT directly reduce market disruption risk?
- Acircuit breakers
- Blimits
- Cshock absorbers
- Dmargins
55Concentration risk in an investment fund can be best represented by which of the following situations?
- ACounterparties are unwilling to transact a particular futures contract because the futures price has moved by the maximum allowable daily limit
- BFunds are allocated to only a fewer asset classes
- CFutures contract positions are significantly mismatched to the underlying asset resulting in over-hedging
- DLarge volumes of redemptions occur at the end of a calendar month
56Which of the following market factors should be used to assess the liquidity risk of investing in a stock market?
- AVolatility
- BTrading volumes and open interest
- CRatings by different agencies
- DExchange rates
57Which of the following factors is UNLIKELY to influence the systemic risk faced by an investor?
- ADegree of leverage
- BChanges in GDP growth rate
- CPolitical instability
- DInterest rates
58If an investor invests most of his money in exchange-traded blue chip equities, the BIGGEST risk faced by him is the ____.
- Aconcentration risk
- Bcorrelation risk
- Cmarket risk
- Dliquidity risk
59In the case of structured product with short put options on the securities index, what happens when there's a fall in the securities index?
- AThere is no loss to the structured product
- BThe put option will be in the money and investors of the structured product have to payout to the option buyer
- CBoth the principal and return component will be definitely affected
- DNone of the above
60Which of the following statements best describes credit risk?
- ARisk relating to a credit product whereby the borrower is unable to fulfill its loan conditions due to a default situation
- BRisk relating to the credit rating of a structured product
- CRisk relating to a structured product that involves borrowing of funds for its investment
- DRisk relating to the issuer of a structured product when it is involved in other credit activities as well
61Which of the following products has the HIGHEST reinvestment risk for a investor?
- AA plain vanilla bond with lower coupon payment frequency
- BA zero-coupon bond
- CA put able bond
- DA callable bond
62The risk arising from the time difference between the commencement of a financial instrument contract and its settlement is referred to as the ______.
- Acorrelation risk
- Btransaction risk
- Cstructure risk
- Dmarket risk
63Which of the following is NOT a function of the front, middle and back office staff of a brokerage firm? Managing the ______.
- Acredit risk
- Bmarket risk
- Creinvestment risk
- Dsettlement risk
64With DV01 of USD 10,000, the position size of a 1-year instrument is limited to USD 100 million (i.e. every basis point move would generate USD 10,000 profit or loss for the position). With the same DV01 of US$10,000, the size if a 5-year instrument will be limited to:
- AUSD 100 million
- BUSD 200 million
- CUSD 50 million
- DUSD 20 million
65Calculate the price of a bond based on the following information. Modified duration = 4, market price of bond = $970, and the bond yield declines by 50 basis points.
- A$989.40
- B$950.60
- C$1,000
- D$990.00
66A portfolio has a 3-month 95% vaR of $5 million. Which of the following statements about the portfolio is TRUE?
- AThere is a 95% probability that the portfolio will fall to 95% of its value within 3 months
- BThere is a 95% probability that the portfolio will fall by $5 million within 3 months
- CThere is a 5% probability that the portfolio will have a zero value within 3 months
- DThere is a 5% probability that the portfolio will fall by 5 million within 3 months
67A financial advisor recommends different product options for the same underlying investment that has the same risk-reward profile to a client. While making the investment decision, the client should accord the least priority to which of the following factors?
- ACheapest pricing
- BIncome payouts on regular or deferred basis
- CPersonal life-cycle profile
- DHis risk tolerance level
68Which of the following correctly represents the structuring of a discount certificate?
- AA short position zero-strike call option and a long call position on a given stock
- BA long position zero-strike call option and a short call position on a given stock
- CA long position zero-strike call option and a long call position on a given stock
- DA short position zero-strike call option and a short call position on a given stock
69A reverse convertible is constructed using:
- AA long zero-coupon bond and short-put option
- BA short zero-coupon bond and short put option
- CA long zero-coupon bond and long put option
- DA short zero-coupon bond and long put option
70In the case of a single knock-out (KO) barrier put option, the knock out price is _____ than the strike price
- Aless than
- Bhigher than
- Cless than or equal to
- Dhigher than or equal to
71For a single "knock out" call barrier option, the barrier level is:
- ACall price < Strike price
- BCall price <= Strike price
- CCall price > Strike price
- DCall price => Strike price
72Which barrier options work like simple European-style options whereby they operate as if they are "Out-of-the-Money (OTM)" and become active when the spot price hits the strike price?
- A"Down & In" calls and "Down & Out" puts
- B"Down & In" puts and "Up & In" calls
- C"Down & Out" calls and "Up & Out" puts
- D"Down & Out" outs and "Up & Out" calls
73All other variables being equal, which of the following statements about barrier options is TRUE?
- ASingle barrier options are cheaper than double barrier options
- BDouble barrier options are cheaper than both single barrier options and standard options
- CStandard options are always cheaper than single barrier options
- DStandard options are always cheaper than double barrier options
74The delta of a callable bull/bear contract (CBBC) is _____.
- Ausually close to -2
- Busually equal to 1
- Cusually close to zero
- Dcan be any number based on the specifications of the CBBC product
75Based on the following specifications of a Bear CBBC, calculate the theoretical value of the contract. Strike price = $30, spot price of the underlying asset = $25, financial cost till maturity = $5.00, and the conversion ratio is 1:1.
- A$5.00
- B$15.00
- C$12.50
- D$10.00
76Which of the following statements about knock-out products and structured warrant is FALSE?
- AThere is no possibility of early termination in either product
- BThere is no margin requirement in either product
- CBoth product can be used to take a bullish or a bearish view of the market
- DBoth products can be used for similar classes of underlying assets
77Which of the following CFDs DOES NOT have any counterparty risk?
- ADirect market access business model CFDs
- BExchange-traded business model CFDs
- CMarket maker business model CFDs
- DNone of the above
78If an investor has a negative view on a stock and believes that stock price will fall, he can execute a profitable trade with:
- ACallable bull/bear contracts or CFDs only
- BCFDs or option only
- COptions or callable bull/bear contracts only
- DCFDs, options or callable bull/bear contracts
79An investor holding a CFD position can use a "stop-loss" order and:
I. It will always be executed when the market stock price hits the stop-loss price
II. It may not always be executed in a volatile market as the stop-loss price may not be hit
III. To ensure further safety, the investor should use a "guaranteed stop-loss" as the order will be executed once the price is reached
IV. The CFD margin requirement can be lower than a position without "stop-loss "order- AI & III
- BI, III & IV
- CII & III
- DII, III & IV
80Which of the following statements about equity CFDs is TRUE?
- AInvestors can only take a long investment position
- BCFDs can be settled by cash or by physical delivery of the underlying asset
- CInvestors are entitled to receive cash dividends and participate in other corporate actions
- DInvestors are entitled to voting rights just as ordinary shareholders
81Equity Contracts for Differences (CFDs) and futures contracts have which of the following features in common?
- AEntitlement to underlying share dividends
- BFixed maturity dates
- CUse of leverage
- DAbsence of counterparty risk
82Which of the following strategies is employed by CFD investors?
- ABear spread
- BButterfly spread
- CCondor spread
- DPairs trading
83Investment in CFDs involves which of the following risk?
I. Currency risk
II. Volatility risk
III. Counterparty risk- AI, II & III
- BII & III
- CI & III
- DI & II
84Extended Settlement Contracts are used to make capital gains by _____.
- Aarbitrageurs
- Bmarket makers
- Cspeculators
- Dhedgers
85Purchasing an Extended Settlement contract is different from purchasing share options mainly because of
- Athe economic interest in underlying shares
- Bthe required margins on purchase
- Cliquidity
- Dvolatility of the underlying share
86Which statement regarding ES contracts procedures is CORRECT?
- AES contracts trading schedule is flexible and can be done according to the date and time set by the brokerage firm for individual contracts
- BFirst trading day is the 15th of the month immediately preceding the contract month
- CIf all positions on outstanding ES contract have been settled, it may be removed from quotation by SGX if it deemed fit by SGX due to market conditions
- DES contracts do not require any initial or maintenance margins
87Settlement of ES contract is done on:
- ALast Trading Day (LTD)
- BLast Trading Day +1 (LTD +1)
- CLast Trading Day +2 (LTD +2)
- DLast Trading Day +3 (LTD +3)
88Which of the following hedging strategies can be employed using Extended Settlement Contracts if an investor has a long cash position in shares?
- AAn arbitrage trade
- BA long hedge
- CA short hedge
- DA stock spread
89An investor purchases an ES Contract for 5,000 shares at $100 per share. The maintenance margin is 10%. If the price of the underlying shares declines to $90, what is the total required margin?
- A$25,000
- B$50,000
- C$95,000
- D$75,000
90If there is a margin call for an ES contract position and the client indicates that the margin amount is forthcoming within the T+2 period, new orders may be accepted if they are:
- ARisk increasing or risk neutral
- BRisk neutral only
- CRisk reducing or risk increasing
- DRisk increasing, risk neutral or risk reducing
91Which of the following statements about Extended Settlement (ES) contracts, margin financing and contra trading is TRUE?
- AContra trading has the highest borrowing cost among the three
- BLeverage required for ES contracts is higher than that for margin financing
- CShort selling is not allowed for ES contracts
- DES contracts have the highest financing cost
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- Quiz on ABCDEF, created by Weiquan Chen on 19/08/2019.
- Author
- Weiquan Chen
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- English
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