1.A trader sells a put option with a strike price of $45 for $7. The trader's maximum gain and maximum loss on that position is:

A)Maximum gain is $45; maximum loss is $7

B)Maximum gain is $38; maximum loss is $7

C)Maximum gain is $7; maximum loss is $45

D)Maximum gain is $7; maximum loss is $38

E)Maximum gain is unlimited; maximum loss is $7

2.The way a central counterparty CCP functions, and the benefit it provides to the counterparties in a derivative transaction is to:

A)Clear an exchange-traded derivative transaction, and eliminate credit risk

B)Clear an exchange-traded derivative transaction, and eliminate market risk

C)Clear an over-the-counter derivative transaction, and eliminate credit risk

D)Clear an over-the-counter derivative transaction, and eliminate market risk

E)None of the above

3.You are an energy trader looking to hedge a WTI crude oil exposure until year-end using futures. The available delivery months in the futures market are April, June, October, and January. The contract with the following delivery month could best hedge your exposure:

A)January

B)April

C)June

D)October

E)Not available

4.You are a fixed-income manager of a portfolio that consists of many bonds. Your analyst has calculated the portfolio's overall duration and you are confident in the precision of that calculation. You can use that duration to accurately estimate your portfolio's:

A)Gain in value when yields increase by 20 bps across the entire yield curve

B)Loss in value when yields increase by 20 bps across the entire curve

C)Gain in value when yields decrease by 400 bps across the entire curve

D)Loss in value when yields decrease by 400 bps across the entire curve

E)Both B and C

5.You are an FX trader and just observed that both the spot and the two-month futures contract on the Swiss franc are quoted at $1.0500 CHF/USD. The two-month risk-free rates are 2.0% in the United States and 1.0% in Switzerland. The positions in the spot and futures market that you would take to profit from a potential arbitrage opportunity that might exist are:

A)Sell CHF spot to buy USD spot, and go long the two-month CHF futures

B)Sell USD spot to buy CHF spot, and go short the two-month CHF futures

C)Sell CHF spot to buy USD spot, and go short the two-month CHF futures

D)Either B or C

E)Do nothing; no arbitrage opportunity exists since the spot and futures prices are equal

6.A typical example of an investment asset that is also a consumption asset is:

A)Common stock of Walmart, Inc.

B)Crude oil

C)Gold

D)Soybeans

E)Treasury Inflation-Protected Securities

7.You are an investor considering the purchase of equal amounts of a U.S. Treasury bond and a corporate bond on August 8, 2019. Both bonds pay a 7% coupon twice a year - on January 7 and July 7.The accrued interest that will be included in these transactions is:

A)Higher for the U.S. Treasury than the corporate bond, and receivable from the seller

B)Higher for the U.S. Treasury than the corporate bond, and payable to the seller

C)The same for the U.S. Treasury and the corporate bond and payable to the seller

D)Lower for the U.S. Treasury than the corporate bond, and receivable from the seller

E)Lower for the U.S. Treasury than the corporate bond, and payable to the seller

8.Company A is the fixed-rate payer in an interest rate swap with company B. The value of the swap is currently positive for company B. Credit and market risk exposures are as follows:

A)A is exposed to credit risk, A to market risk

B)B is exposed to credit risk, A to market risk

C)A is exposed to credit risk, B to market risk

D)B is exposed to credit risk, B to market risk

E)Both A and B are exposed to credit and market risk

9.Company A requires a fixed-rate investment; company B requires a floating-rate investment. The two companies have been offered the following annual rates of return: