Podcast
Questions and Answers
What are the payoffs for financial derivatives linked to?
What are the payoffs for financial derivatives linked to?
- The volatility of interest rates
- Securities that will be issued in the future
- Government regulations specifying allowable rates of return
- Previously issued securities (correct)
Which of the following is NOT considered a financial derivative?
Which of the following is NOT considered a financial derivative?
- Forward contracts
- Futures
- Options
- Stocks (correct)
What is one reason to hedge a portfolio?
What is one reason to hedge a portfolio?
- To reduce exchange rate risk
- To increase the probability of gains
- To limit exposure to risk (correct)
- To profit from capital gains when interest rates fall
How is hedging risk for a long position typically accomplished?
How is hedging risk for a long position typically accomplished?
By hedging a portfolio, what risk does a bank manager typically aim to reduce?
By hedging a portfolio, what risk does a bank manager typically aim to reduce?
Which of the following is a characteristic of financial derivatives?
Which of the following is a characteristic of financial derivatives?
When interest rates fall, what happens to the value of securities compared to futures contracts?
When interest rates fall, what happens to the value of securities compared to futures contracts?
What is the purpose of hedging risk for a short position?
What is the purpose of hedging risk for a short position?
What is a contract that requires the investor to buy securities on a future date called?
What is a contract that requires the investor to buy securities on a future date called?
What is the hedge called when a financial institution hedges the interest-rate risk for a specific asset?
What is the hedge called when a financial institution hedges the interest-rate risk for a specific asset?
In a long contract, what does the investor need to do in the future?
In a long contract, what does the investor need to do in the future?
What is the term for the number of futures contracts outstanding?
What is the term for the number of futures contracts outstanding?
What does a person agree to do when they 'go long' in an asset at a future date?
What does a person agree to do when they 'go long' in an asset at a future date?
Which feature of futures contracts was NOT designed to increase liquidity?
Which feature of futures contracts was NOT designed to increase liquidity?
What is required of an investor in a short contract concerning the future?
What is required of an investor in a short contract concerning the future?
In hedging interest-rate risk on its overall portfolio, what type of hedge does a financial institution use?
In hedging interest-rate risk on its overall portfolio, what type of hedge does a financial institution use?
Which aspect characterizes a micro hedge in financial risk management?
Which aspect characterizes a micro hedge in financial risk management?
When a contract requires an investor to sell securities on a future date, what is it called?
When a contract requires an investor to sell securities on a future date, what is it called?
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