1. An over-the-counter forward contract:

a. Is marked-to-market daily

b. Will be closed-out by the clearing house if a margin call is ignored

c. Is not subject to daily settlement

d. Rarely involves physical delivery

2. Equity markets involve:

a. A permanent transfer of funds

b. A temporary transfer of funds

c. A predetermined return to investors

d. Both B and D

3. Relative to the maturity of a bond, the duration is:

a. longer when interest rates exceed the coupon rate

b. longer when interest rates are less than the coupon rate

c. shorter when the bond does not pay coupon interest

d. shorter when the bond does pay coupon interest

4. If a short futures position is held by a hedger, a corresponding long futures position must be held by:

a. a speculator

b. a hedger

c. an arbitrageur

d. any of the above

5. Floating rate notes have a duration that:

a. is infinite

b. is equal to one plus the yield divided by the yield

c. is at least equal to the time between coupon payments

d. is at most equal to the time between coupon payments

6. If an individual who takes a short position in a futures contract wishes to realise a profit from their position, they should:

a. find a buyer and sell their position

b. offset their original contract by entering into another as a seller

c. offset their original contract by entering into another as a buyer

d. take delivery of the commodity

7. Which of the following statements is incorrect?

a. Arbitrageurs are motivated to earn a profit

b. Arbitrageurs are motivated to reduce the risk of an existing exposure

c. Arbitrageurs aim for a risk-free position

d. Arbitrageurs profit from inconsistent pricing