Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
c. The actual and potential loss suffered due to changes in some factors
a. Variance.
b. Semi-variance.
c. Range.
d. Standard deviation.
a. Avoidance.
b. Separation.
c. Transfer.
d. Loss control.
a. Avoidance
b. Loss control
c. Separation
d. Combination
e. Transfer.
8. Insurance policy for vehicles covering third party risk is a ________ technique for
managing risk.
a. Separation
b. Combination
c. Transfer
d. Risk financing
9. The selection of suitable methods for risk management depends upon which of
the following?
a. Loss control
b. Hedging
c. Transfer
d. Combination
e. Separation.
11. The objective function of the risk management policy of a banking firm is to
c. There are a number of probable outcomes, the outcomes being unknown and it is
not
10
Part I
amount.
c. Degree of risk is dependent on the level of information available with the entity
d. As the market value of a firm’s shares is closely related to the profit earned by it,
corporate risk can also be termed as the possibility of a company’s actual Profits
14. Which of the following risks will not affect exchange risk?
a. Inflation risk.
c. Sovereign risk.
d. Investment risk.
c. Liquidity risk and incorrect capital structure are the prime reasons for financial
risk.
d. Liquidity risk may also refer to the possibility of a firm having excess funds but no
a. Market collapse.
b. Legal risk.
c. Processing risk.
d. Government policy.
a. A firm that has borrowed money on a floating rate basis faces the risk of lower
b. In an increasing interest rate scenario, a firm having fixed rate assets will
encounter
c. A firm that has fixed rate borrowing and floating rate investments has a higher
risk
than a firm having fixed rate borrowing and fixed rate investments.
a. Financial risk
b. Default risk
c. Credit risk
d. Market risk
e. Legal risk.
11
a. Acceptable risks
b. Unacceptable risks
c. Static risks
d. Dynamic risks
21. The costs, which are incurred to take precautions and limits on the chances of
recurrence of
risks is called
a. Pure risks
b. Acceptable risks
c. Unacceptable risks
d. Dynamic risks
a. Disaster risk
b. Legal risk
c. Reputation risk
d. Taxation risk
b. Risk of a possible bankruptcy arising due to the inability of the firm to meet its
financial obligations.
a. Political risk
b. Sovereign risk
c. Inflation risk
d. Currency risk
12
© ICFAI June, 2004. All rights reserved.Ref. No. FRMWB – 06200441
Part I
26. Which of the following risks fall under the category of Interest Rate Risk?
a. Volatility risk.
c. Prepayment risk.
d. Reinvestment risk.
27. When the costs/yields of liabilities/assets are linked to a floating rate and there
is no
a. Basis risk
b. Put risk
c. Prepayment risk
e. Volatility risk.
29. The firm producing and selling in domestic market may face _______ risk when
the
economy is opened.
a. Operating risk
b. Transaction risk
c. Translation risk
30. Which of the following risks is absent for a buyer of a futures contract?
a. Market risk.
b. Counterparty risk.
c. Liquidity risk.
d. Business risk.
e. Financial risk.
31. Risk of the assets of a firm not being readily marketable is called
a. Market risk
b. Marketablity risk
c. Business risk
d. Financial risk
e. Exchange risk.
a. Labor strike.
b. Machinery breakdown.
d. Government policy.
13
b. When you buy or sell a futures contract the price is fixed today but payment is
made
at a later stage.
commodity.
a. A firm having fixed rate assets faces the risk of lower value of investments in
b. A firm having fixed rate assets faces the risk of lower value of investments in an
c. Interest rate risk becomes prominent when the assets and liabilities of a firm do
not
e. Liquidity risk also refers to the possibility of having excess funds and no
profitable
Financial Engineering
60. Who, among the following, coined the term Financial Engineering?
a. Enthusiastic investors.
b. London Central Bank.
c. World Bank.
d. London’s Investment Banks.
e. Corporates.
61. The rationale behind the concept of “Financial Engineering” is ________.
a. To aid engineers to perform the finance functions of a firm
b. To look into the financial aspects of the financial projects effectively
c. To aid the market participants to react effectively to the rapidly changing Financial
market scenario
d. To make the Financial markets stable
e. To enhance further development of the Finance subject.
62. Which of the following does not come under the scope of “Financial Engineering”?
a. Corporate Finance.
b. Trading.
c. Investment Function.
d. Accounting and Bookkeeping
e. Risk Management.
63. Which of the following is not a ‘Conceptual Tool’ of a financial engineer?
a. Hedging Theory.
b. Accounting relationships.
c. Portfolio Theory.
d. Equities.
e. Valuation Theory.
18
© ICFAI June, 2004. All rights reserved.Ref. No.
FRMWB – 06200441
Part I
64. Which of the following can be identified as ‘Physical Tools’ of a ‘Financial Engineer’?
i. Bonds.
ii. Weather Derivatives.
iii. Hedging Theory.
iv. Portfolio Theory.
v. Securities.
a. Only (i), (iii), (iv) above.
b. Only (i), (iv), (v) above.
c. Only (i), (ii), (v) above.
d. Only (iv) above.
e. Only (v) above.
65. Which of the following External/Environmental factors contribute to the growth of
Financial Engineering?
i. Regulatory Changes and increased competition.
ii. Transaction costs.
iii. Advances in Financial theory.
iv. Liquidity needs of firms.
a. Only (i), (ii) and (iii) above
b. Only (i), (ii) and (iv) above
c. Both (iii) and (iv) above
d. Only (ii), (iii), (iv) above
e. Only (iv) above.
66. The Internal/Intra-firm factors, which contribute to the growth of Financial Engineer are:
i. Agency Costs.
ii. Accounting Benefits.
iii. Tax Asymmetries.
iv. Quantitative sophistication and management training.
a. Both (i) and (iv) above
b. Both (i)and (iii) above
c. Only (iii) above
d. Only (i), (ii) and (iv) above
e. Only (iii) and (iv) above.
67. Which of the following is not a reason for the existence of Tax Asymmetries among the
firms?
a. Different countries impose different tax burdens.
b. Discrimination between Foreign and Domestic firms in a country’s Taxation Policy.
c. Tax sops provided to certain companies/sectors in order to encourage their
development and growth.
d. Tax exemptions or reductions given to a certain firm, based on its past performance
by a country
e. Firms’ inability or ability to pay taxes on the basis of their earned profits.
19
Derivatives
20
Part I
74. Which is the most recently introduced derivatives contract in Indian market?
c. Currency options.
a. Forward.
b. Futures.
c. Options.
d. Swaps.
a. Replacement risk
b. Price risk
c. Credit risk
d. Mark-to-market risk
a. Hedgers in derivatives market are exposed to risk due to their normal business
operations.
78. Which of the following is チ enot チ f the reason for popularity of derivatives?
a. Easy to take short position in the underlying asset.
c. Leverage instrument.
d. High liquidity.
a. Nature of contract.
b. Underlying assets.
c. Market mechanism.
a. Finance function
b. Forex function
c. Treasury function
21
c. A derivative instrument does not derive its value from any asset.
82. Who among the following is not a participant in the derivatives market?
a. Hedgers.
b. Speculators.
c. Central banks.
d. Arbitrageurs.
a. (i) only
b. (ii) only
b. Exchange traded derivatives are less liquid, and have high transaction costs.
underlying assets.
d. There is a relation between the values of derivatives and their underlying assets.
b. Counterparty risk
c. Interest risk
86. _________ act as a critical link between the derivatives market and the cash
market so that
both the markets synchronize to the extent that there cannot be much
disequilibrium in the
markets.
a. Hedgers
b. Speculators
c. Arbitrageurs
d. Investors
e. Central Banks.
22
Part I
a. Oil futures.
b. Pepper futures.
c. Cotton futures.
e. Currency futures.
c. Currency forwards.
d. Energy futures.
Futures
91. Which of the following can be considered as the advantages of controlling beta
by using
92. The beta of a portfolio is 1.1. The investor who holds this portfolio foresees a
bearish phase
for the market in the short run and wants to reduce the beta of the portfolio to 0.6.
Which of
the following strategies can be adopted for achieving the desired level of beta?
i. Sell a part of the equity portfolio and invest the proceeds in debentures.
ii. Sell high beta stocks and buy low beta stocks.
a. (i) only
b. (ii) only
c. (iii) only
23
management strategies
b. A portfolio that attempts to match the performance of some stock market index
by
investing in the same stocks and in the same proportions as those that comprise
the
94. Which of the following statement(s) is/are true for index arbitrage?
a. 25
b. 50
c. 100
d. 200
e. 250.
96. Which of following statement(s) is/are false for the index futures?
a. The initial and maintenance margins are applicable to both the buyers and
sellers.
b. The margins can be maintained in the form of cash or risk-free short date
Government Securities.
c. Cash customers position is marked to the market at the end of the cash
settlement period.
97. The process of earning abnormal risk by trading simultaneously in the spot and
futures
market is called
c. Program trading
98. An investor goes long on Nifty future contract at Rs.1,225. Initial margin was
5000 with
a. Rs.9,500
b. Rs.10,000
c. Rs.14,500
d. Rs.15,500
99. When futures prices are above cash prices, the algebraic value of the basis
a. Remains constant
d. Is equated to zero
24
Part I
100. If, at the time of making a contract, no transaction is recorded in the books
because delivery
and payment are yet to take place, the transaction is called as a/an
a. Executary contract
b. Preliminary contract
c. Futures contract
101. Estimating the relation between changes in futures price and changes in the
spot price of the
102. To change the beta of a portfolio from to ƒÀ to ƒÀ using futures, where S is the
spot price of
contracts is needed
contracts is needed
contracts is needed
contracts is needed
e. A long position in *
2F
. ƒÀ +ƒÀ .
..
..
Scontracts is needed.
103. One of the following is a substitute for physical delivery while settling futures
obligation.
a. Offsetting
d. Cash settlement
104. A futures contract on bonds is now selling at 92.50 and any of the following
bonds can be
delivered under the contract. Which of the bonds is the cheapest to deliver?
1 98.50 1.0292
2 101.50 1.0401
3 136.00 1.3453
4 120.75 1.2595
a. 1
b. 2
c. 3
d. 4
e. Information insufficient.
25
c ICFAI June, 2004. All rights reserved.Ref. No. FRMWB . 06200441
a. Ratio of price per unit times the initial margin required to deposit times the
number
c. Total expected value of the futures contract times the per unit value of the
contract
106. Which of the following formulae is required to describe a general cost of carry
price
FPt,T = Futures price at time t for a futures contract requiring delivery at time T.
Rt,T = Annualized riskless interest rate at which funds can be borrowed at time t for
period (t . T).
Gt,T = The cost of storing the physical commodity per unit for the time period from
a. Cash price + Financing costs per unit + Storage cost per unit.
365
+ Gt,T
d. FPt,T = CPt x t
t,T
CP
x 365
a. Hedgers seek to eliminate or control the risk exposure that arises due to adverse
changes in prices
b. Hedgers seek to eliminate or control the risk exposure associated with the
quantity
c. A firm that owns or plans to purchase a cash commodity sells futures to hedge
their
109. The assets that can be delivered against a futures contract are called
a. Speculated assets
b. Hedged assets
e. Deliverable assets.
26
Part I
112. When a position is over hedged, the profit or loss from the speculative futures
position will
depend upon
113. When futures are used to hedge an exposure, the final price obtained by the
hedger can be
expressed as
a. The sum of spot price at the time of squaring off the hedge and the gain or loss
on
futures
b. The sum of (i) the difference between the spot prices on the day of hedging and
the
day of closing out the hedge and (ii) futures price on the day of squaring off
c. The sum of spot price at the time of hedging and the basis at the time of hedging
d. The sum of the futures price at time of hedging and the basis at the time of
squaring
114. If a related commodity on which a future is traded is used for hedging an asset
on which no
a. Buying hedge
b. Selling hedge
c. Perfect hedge
d. Rolling hedge
e. Cross hedge.
i. Futures contract
a. (i) only
b. (ii) only
27
116. A good rule of thumb regarding futures is to choose a delivery month that is as
close as
possible to, but later than the expiration date of the hedge. The basis of this rule is
based on
c. The holder of the contracts does not want to get the asset delivered
117. The market in which the futures price is greater than the cash price is referred
to as
a. Basis
b. Contango
c. Backwardation
e. Actual market.
118. The optimal hedge ratio for hedging with futures will be equal to 1.0 when
i. There is perfect positive correlation between the changes in the values of the
futures and
ii. There is perfect negative correlation between the changes in the values of the
futures and
equal.
iv. The standard deviation of the changes in values of the asset and the futures are
unequal.
120. The cash price of a ton rice on January 1, 2000 was Rs.1,500. The annualized
borrowing rate on
the same day was 12%. The cost of storing the rice is Rs.50 per month. Calculate
the following
with the help of the above information. What is the settlement price of November 1,
2000 rice
futures contract?
a. Rs.1,250
b. Rs.1,780
c. Rs.1,800
d. Rs.1,695
e. Rs.2,150.
28
c ICFAI June, 2004. All rights reserved.Ref. No. FRMWB . 06200441
Part I
c. The funds are held in equal proportion by the clearing members and the clearing
association.
122. The minimum size of price movement which is specified by the London
International
a. Index
b. Pip
c. Strip
d. Pick
e. Tick.
123. The mechanism for determining transaction prices in futures markets involves:
a. An auctioneer acting the for the exchange calling out bid and offered prices until
a
b. A specialist offering to buy and sell at the highest and lowest prices in the market
c. Brokers seeking the highest sell and lowest buy prices available in the market
a. Hedging with futures means substituting the price risk with the basis risk.
b. Hedgers pass on their risk to the speculators.
indicates that
a. If the variance of basis is equal to the variance of the cash price, the hedge would
be
optional.
b. The higher the variance of the basis, the lower the effectiveness of the hedge.
c. By hedging through futures, one swaps price risk with basis risk.
29
247 1/4 249 1/4 246 3/4 248 +2 275 220 121226
128. S1 and F1 represent spot and future prices at time t1 and S2 and F2 represent
spot and
future prices at time t2. If the basis has strengthened between time t1 and t2 (t1 <
t2), then
a. F2 . F1 = S2 . S1
b. F1/S1 = F2/S2
c. F2S2 = F1S1
129. In which of the following futures contracts, the holding cost can be negative?
a. Index futures.
b. Oil futures.
c. Silver futures.
d. Gold futures.
130. Due to mark-to-market, profits and losses are settled at the end of
a. Every day
b. Every month
c. Every week
a. A broker
b. Another forward contracts trader
d. An exchange
30
Part I
133. At any given time the clearing house net position will be equal to
c. Zero
a. In inverted markets, the price of distant futures contract is less than the near
futures
contract.
b. At the time of expiration, the value of basis should be equal to or nearly equal to
zero.
commodities.
d. Inter-market cross margining refers to collecting margins centrally irrespective of
d. The broker
136. If the average daily price change is Rs.25 and the standard deviation of the
price changes is
Rs.3.00, the initial margin will be ______. Assume that there are 100 units per
contract.
a. Rs.3,400
b. Rs.3,700
c. Rs.4,000
d. Rs.4,100
e. Rs.4,200.
a. Vertical margin
b. Variation margin
c. Maintenance margin
d. Spread margin
a. Vertical margin
b. Variation margin
c. Performance margin
d. Spread margin
139. A futures trader can square up his position only by dealing in contracts which
are similar to
a. Number of contracts
b. Commodity traded
d. Delivery terms
31
141. A trader is long in the spot market and short in the futures market. If the basis
is positive
b. Lose in futures
c. Insufficient data
d. Cannot be determined
e. None of the above.
142. A trader is short in the spot market and long in the futures market. If the basis
is positive
a. Lose
b. Gain
d. Cannot be determined
a. Quality
c. Expiration month
d. Quantity
b. The settlement price is the price of the last trade on that day.
c. Open interest denotes the cumulative number of contracts due for delivery.
d. A broker who is not a member of the clearinghouse has to route his client チ fs
order through
145. Which of the following statement/s is/are example(s) of underlying asset(s) for
futures
contracts?
a. Bond index.
b. Stock index.
c. Currency.
d. Oil .
146. In which of the following forms can members of an exchange maintain the
margin relating
to transactions in futures?
a. Cash.
b. Treasury bills.
c. Letter of credit.
32
Part I
a. Selling a spread means チ gSale of near maturity contract and purchase of far
maturity
contract チ h.
b. Selling a spread means チ gPurchase of near maturity contract and sale of far
maturity
contract チ h.
c. Buying a spread means チ gPurchase of far maturity contract and selling a near
maturity ontract チ h.
Options
ii. If the current stock price is above the strike price of a call, the option has some
intrinsic value.
iii. Put options with lower strike prices are more valuable.
iv. If the strike price is equal to the current stock price, an option is said to be at the
money.
a. (i) only
b. (iii) only
c. (iv) only
149. Buying and selling call or put option with the same strike price but different
expiration
dates is called
a. Long hedge
b. Short hedge
d. Nearby contract
a. Price of a call option rises with increase in the value of underlying asset.
b. Price of put option rises with increase in the value of underlying asset.
c. The option being valued can be exercised anytime before the expiration date.
a. Horizontal spreads involve buying an option and selling an option of the same
type
b. Bull vertical put spread is created by purchasing a put option with a low strike
price
and selling a put option with a higher strike price, both with the same expiration
date.
c. A bear vertical call spread is created by buying a call with lower strike price and
selling a
33
i. The price of a call option is always more than the underlying stock price.
ii. The price of a call option cannot be less than the underlying stock price.
iii. The price of a put option cannot be more than the strike price.
a. (i) only
b. (ii) only
c. (iii) only
b. The writer of a naked put option must be bullish on the underlying asset.
c. The buyer of the call option is bearish on the underlying asset market.
156. Among the instruments listed below, which is/are option like instruments?
i. Rights
ii. Warrrants
a. (iii) only
c. (ii) only
157. Anticipating a in significant change from the spot price, a dealer buys two calls
on dollars
a. X1 < X2 < X3
b. X1 > X2 > X3
c. X2 > X1 > X3
d. X2 < X1 < X3
ii. Black-Scholes model can be used to work out exact values of American put
options.
iii. The values of put and call options will be equal at a strike price which is equal to
the
a. (i) only
b. (ii) only
34
Part I
a. The price of the European option is normally higher than that of an American
option
on the same asset with same strike price.
b. Simultaneous buying a call and a put option at the same strike price
161. The binomial option-pricing model uses ________ time whereas the Black-
Scholes model
uses _________ time and further assumes that the underlying asset’s volatility
is_______
and that _______ computational methods are used to derive the option prices.
162. Higher the volatility of the price of underlying asset, higher would be the price
of
163. If the value of the option is zero on the expiry date, then
a. The spot rate is less than or equal to strike price for a call option
b. The spot rate is more than or equal to strike price for a put option
c. The strike price is equal to spot price irrespective of whether it is a put option or
call option
a. Buying a call and a put with same strike price and different maturities
b. Buying a call and a put with same expiration date and same exercise price
c. Buying a call and a put with same expiration date and different exercise prices
d. Buying two calls at same expiration date and different exercise prices
e. Buying two puts at different expiration date and same exercise prices.
35
a. V shaped
b. U shaped
c. Z shaped
d. Inverted U shaped
e. Inverted L shaped.
166. Suppose a put option has an underlying asset of Rs.102 and the exercise price
is Rs.100.
a. –2, 0, 6
b. 0, –2, 6
c. 0, 0, 6
d. –2, –2, 6
e. 0, 0, 8.
a. c – p = s + PV(X)
b. p – c = s – PV(X)
c. c – p = s – PV(X)
d. c + p = s – PV(X)
e. c = p – s + PV(X).
168. An option dealer took a short position in a call and put options on dollar at
strike price of
Rs.43.00. He received a premium of Rs.2.50 for each option. For dealer to make a
gain in
a. Rs.40.50 to Rs.43.00
b. Rs.43.00 to Rs.45.50
c. Rs.40.50 to Rs.45.50
d. Rs.38.00 to Rs.48.00
e. Rs.40.50 to Rs.45.00.
169. The minimum margin, which a customer must maintain with the member at all
times,
is known as
a. Initial margin
b. Maintenance margin
c. Variation margin
170. What is the time value of a put option at the time of maturity if premium = 1,
a. 0
b. 0.5
c. 1.0
d. 1.5
e. 2.0.
36
Part I
171. With regard to vertical spread which of the following statement(s) is (are)
correct?
a. 1
b. < 2
c. 3
d. 4
e. 5.
173. Going long on a currency and short on a call option results in the pay-off profile
of a
174. Going short on a currency and long on a call option results in the pay-off profile
of a
175. Going long on currency and long on put option results in the pay-off profile of
176. If you are an exporter expecting to receive $1,00,000 after three months, you
can hedge by
37
177. If you are an Indian importer, needing to remit $1,000,000 after three months,
you can
hedge exposure by
178. In which option does the buyer get the right to buy the underlying asset?
a. Call option.
b. Put option.
c. American option.
d. European option.
e. Asian option.
179. In which option does the buyer get the right to buy the underlying asset any
time during the
contract period?
a. Digital option.
b. Asian option.
c. American option.
d. European option.
180. Ms. Priya has bought a call option on MTNL at strike price of Rs.175 by paying
premium
of Rs.10. She is short on a call option on MTNL at a strike price of Rs.185 for Rs.6.
Calculate at what price of MTNL, Ms. Priya’s position will break even.
a. Rs.169
b. Rs.175
c. Rs.179
d. Rs.185
e. Rs.201.
181. The spot price of ITC is Rs.910. An exchange is trading the following option
contracts.
Call Put
An investor bought a call option at a strike price of 920 and a put option at strike
price of
c. Long strangles
38
Part I
182. A _______ is created by going short on both put and call options, and the strike
price and
a. Synthetic put
b. Long straddle
c. Short straddle
d. Long strangle
e. Short strangle.
183. Suppose a June call option on a stock X is currently trading at Rs.31 with a
strike price
Rs.35. On the expiration date the price of the stock is Rs.32. Then, which of the
following
is correct?
a. Option is in-the-money.
b. Option is out-of-the-money.
c. Option is at-the-money.
d. Pay-off is Rs.3.
e. Pay-off is Rs.6.
184. There is a put option on a stock trading at Rs.2 its strike price is Rs.35. What
would be the
price of the put option with a strike price of Rs.34?
a. 1
b. 2
c. 3
d. < 2
e. Cannot be determined.
185. When you buy a call option on any underlying asset by paying Rs.3 as a
premium with
strike Rs.48, the price of the underlying asset should be ______ for you to obtain
profits?
a. 49
b. 50
c. 51
d. > 51
e. > 45.
186. For which of the following options, the time value will be maximum?
a. In-the-money options.
b. At-the-money options.
d. Deep-in-the-money options.
e. Deep-out-of-the-money options.
187. When the strike price of an option is equal to the spot price of the underlying
asset at the
a. Deep-in-the-money
b. In-the-money
c. Out-of-the-money
d. At-the-money
188. Synthetic long put can be created by which of the following combinations?
39
189. A modest risk-taking speculator who expects wide variation in the exchange
rates can
e. Buy a straddle.
a. Butterfly spread
b. Straddle
c. Strangle
d. Bull spread
e. Ratio spread.
c. Buying a call and a put with identical strike rate and expiration date
d. Writing a call and put with identical strike rate but different expiration date
e. Buying a call with a farther maturity and writing a put with nearer maturity.
way
c. Describes the change in the value of a variable other than a period of time in an
uncertain way
195. If c and C represent prices of European and American call options and S
represents the
b. C > S
c. C < c
40
Part I
196. Which of the following factors is/are not considered while valuing options on
stocks?
b. Time to expiration.
a. The price difference between two American puts cannot exceed the difference in
exercise prices.
b. The price difference between two European puts cannot exceed the difference in
exercise prices.
c. The price difference between two American puts cannot exceed the difference in
the
c. Limited to the difference between the exercise price and the stock price at the
time
of exercise
d. Unlimited
a. An option holder will have a right to exercise but not the obligation of exercising.
b. An option writer will have a right to exercise the option but not obliged to do so.
c. If the writer of the option choses to exercise, the liability of the buyer becomes
unlimited.
41
d. Those options which can be exercised only if the asset price crosses an agreed
limit
203. When the price of the stock is same as the price of the option
204. When the price of the stock is less than the exercise price of the option
a. Buying a stock and a put option and writing a call option on the asset already
owned
Pay-off
42
Part I
207.
PPaayy--oofff f
208.
Pay-off
a. Long put
b. Short put
c. Long call
d. Short call
e. Long call and short put.
209.
Pay-off
a. Long put
b. Short put
c. Long call
d. Short call
43
a. Max (0, E – S)
b. Max (S – E, 0)
c. Max (E, S)
d. Max (S, 0)
a. The pay-off from a call option is exactly equal to pay-off from a put option
b. The price of one of the options (put or call) is related to the price of the other
c. The pay-off from a call option is exactly equal to the pay-off from a put option and
buying a stock
d. The pay-off from a call option and buying a stock is exactly equal to the put
option
b. It is not useful when possible inflows undergo continuous changes due to various
factors.
c. That it cannot be used as highest and lowest values of the stock cannot be
determined easily.
world.
a. Buying a call with a higher exercise price and writing a call with a lower exercise
price
b. Buying a call with a lower exercise price and writing a call with a higher exercise
price
c. Buying a call and a put each of which has the same exercise price and same time
to
expiration
d. Buying two calls at the same exercise price and writing a put at a lower exercise
price
e. Buying a put and writing a call each of which has the same exercise price and
same
time to expiration.
44
Part I
c. The price of the underlying asset remains more or less stable up to the
expiration date
a. Buying a put and a call on the same underlying asset for the same exercise price
but
b. Buying a put and a call on the same underlying asset with the same exercise
price
c. Buying a put and a call on the same underlying asset at different exercise price
and
d. Buying a put and a call on the same underlying asset with the same expiration
period
but different exercise prices
e. Selling a put and buying a call of the same exercise price and time to expiration.
a. The higher the ratio of the current price of the stock to the exercise price of the
call,
b. The longer the time to expiration on the call, the higher the value.
c. The higher the riskless rate of interest, the greater the value of the call.
d. The lower the ratio of the current price of the stock to the exercise price of the
call,
e. The longer the time to expiration on the call, the lower the value of call.
219. Given N(d1) = 0.5080 and N(d2) = 0.3707, the hedge ratio is
a. 0.5080
b. 0.3707
c. 0.8787
d. 0.1373
e. 0.5007.
220. The strategy of buying an option and selling another option of the same type
and time to
d. Straddle
e. Strangle.
b. The covered call writer foregoes the opportunity to benefit from an increase in
the
c. The risk of writing multiple options exposes the writer to larger risks.
45
a. The per share profit from short selling is limited to an amount equal to the price
at
b. The short seller earns Re.1 profit for every Re.1 fall in the price of the security.
223. An investor buys 100 6-month call of Reliance Industries at a strike price of
Rs.200, when
The call price is Rs.5 per share, at the end of six months the maximum loss to the
investor
will be
a. Rs.500
b. Rs.1,800
c. Rs.2,000
d. Rs.2,500
e. Rs.3,000.
224. Which of the following strategies does not involve buying the underlying
security?
b. Protective put.
c. Spreads.
225. If an investor is long on a call option at a strike price of Rs.400, he will make
profit only
a. Below Rs.400
b. Above Rs.400
c. Rs.400
d. Rs.500
e. Rs.600.
226. An investor is short on put at strike price of Rs.200. Determine his profit/loss, if
closing price is 200 and premium charged was Rs.5 and trading lot for put is 100.
a. Rs.500 profit
b. Rs.1,500 profit
c. Rs.2,500 profit
d. Rs.2,500 loss
e. Rs.3,500 profit.
227. An investor buys a call option contract for a premium of Rs.200. The exercise
price is
Rs.20 and the current market price of the share is Rs.17. If the share price after
three
months reaches Rs.25, what is the profit made by the option holder on exercising
the
a. Rs.200
b. Rs.250
c. Rs.300
d. Rs.350
e. Rs.400.
46
Part I
228. An investor buys a call option contract for a premium of Rs.300. The exercise
price is
Rs.30 and the current market price of the share is Rs.26. If the share price after
three
months reaches Rs.30, the amount of loss to the investor will be ______.
a. Rs.300
b. Rs.350
c. Rs.400
d. Rs.450
e. Rs.500.
229. You wrote a put option contract for a premium of Rs.250. The exercise price of
option is
Rs.50 and the current market price is Rs.45. After a period of four months the price
of the
stock is Rs.53. If the option holder exercises the option, total loss will be Rs.______.
Ignore
a. 50
b. 100
c. 250
d. 450
e. 550.
230. A put option was written at a premium of Rs.400. The current market price of
the stock is
Rs.38 and the exercise price of the contract is Rs.35. After a period of two months
the price
of the stock is Rs.30. The amount of the profit made by the option holder is
Rs.______.
a. 325
b. 250
c. 150
d. 100
e. 75.
233. Margins are imposed on the writers of the option to provide immunity to
a. Buyer
b. Broker
c. Exchange
47
following effect:
b. The option holders can cast their vote only in annual general meetings
a. The value of an option does not depend on price of the underlying asset.
b. Options give you the right, but not the obligation, to buy or sell an asset.
c. Options cannot be used to hedge commodities.
b. Options represent a special kind of financial contract under which the option
holder
a. Simultaneous buying of a call and selling of a put option with identical maturity
b. Simultaneous buying of a put and selling of a call option with identical maturity