1. Which of the following is(are) correct description of an American Option?

1. It is only traded on the exchanges in the USA.
2. It can be exercised anytime from the date of issue to the maturity date.
3. It is always denominated in USD.

1. I only
2. II and III only
3. II only
4. I, II and III

2. Which of the following is(are) feature(s) of futures contracts?

1. Futures contracts are tailor-made and settled through clearing house.
2. Margin is applied to the long position only.

1. I only
2. II only
3. Both I and II
4. Neither I nor II

3. The one-year spot rate is 4% and the two-year spot rate is 6%. What is the forward rate for the second year?

1. 2.24%
2. 5.39%
3. 6.53%
4. 8.04%

4. ABC Company issued a bond that will pay the coupon annually. The coupon is 1% plus the interest rate in the coming year. What type of risk is ABC Company exposed to?

1. Type I
2. Type II
3. Type III
4. Type IV

5. Which of the following is the function of the market maker in the futures market?

1. To act as the middle man of the buyers and sellers of the futures contracts.
2. To provide buy and sell orders to the less active futures contracts.
3. To calculate the margin requirement in futures contract.
4. To calculate the margin account levels of the investors.

6. Which of the following correctly describe forward contracts and futures contracts?

1. Forward contracts are private contracts.
2. Futures contracts are standardized contracts.

1. I only
2. II only
3. Both I and II
4. Neither I nor II

7. Which of the following is(are) correct?

1. Derivatives can be used to hedge price risk.
2. Derivatives can be used to hedge credit risk.

1. I only
2. II only
3. Both I and II
4. Neither I nor II

8. Which of the following is(are) correct?

1. Limits buy orders are orders to buy at a price that is above the current market price.
2. Stop sell orders are orders to sell at a price that is above the current market price.

1. I only
2. II only
3. Both I and II
4. Neither I nor II

9. Oscar Wire Manufacturing Corp. (Oscar) uses steel in the manufacturing of wires. The company wants to fix the cost of steel to fulfill its need of steel in the coming 2 months. Which of the following should Oscar do to achieve that?

Strategy Position

1. Long hedge Long copper futures
2. Long hedge Short copper futures
3. Short hedge Long copper futures
4. Short hedge Short copper futures