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Chap.

2 Futures
1. There are certain risks involved in hedging in the forward or futures
market. which of the following is true?
A. Futures contracts have no counterparty risk, only the risk of the
exchange while forward contracts carry the credit risk of the
counterparty.
B. Futures contracts have both mismatch risk and basis risk
C. Futures contracts have the risk of the exchange.
D. A and B only
2. Market participants preference for exchange traded instruments over
OTC instruments is due to ____
I.
More transparency in pricing
II.
Market liquidity
III.
Reduced credit risk
A. I only
B. II only
C. I and II
D. All of the above
3. For every financial future instruments, the delivery dates are ___
A. Standardized across all exchanges
B. Fixed and there is one delivery date per month
C. Designed and limited to an efficient number for a particular
exchange
D. Flexible and determined by the traders
4. Spot USD/CAD is trading at 0.990. given that 3 month US Interest rates
at 0.30% and 3 month Canadian interest rates at 1.2%. what should be
the 3 month outright rate for USD/CAD?
A. 0.9922
B. 0.9878
C. 0.9900
D. 0.9989
5. Where the yield curve is positive ,we would expect the T-bonds futures
price to be _____than the cash
A. Lower
B. Higher
C. Same
D. Not enough information provided

Chap. 3 Future strategies


6. A trader expects that the Japanese Yen will reverse its recent course
and decline in the coming months. Given that the current level of 3
month US and Japan interest rates in the money markets are 2% and

0.25% respectively, which of the following choices would the trader


pick?
(Assume other factors are not a concern.)
A. Buy USD/JPY in the foreign exchange market at 82.20 for spot
delivery
B. Buy a JPN /YEN currency futures Sep 12 contract at 0.012295
C. Sell a JPN /YEN currency futures Sep 12 contract at 0.012265
D. Sell USD/JPY in the foreign exchange market at 82.20 for spot
delivery
7. A local company wishes to take a 6 month USD 50 million loan from an
American bank in 5 months time (i.e in Sep.) Currently, the 6 month
USD lending rate is 1.65%. The September and December Eurodollar
futures are 98.25 and 98.10 respectively. 5 months later, the 6 month
USD lending rate rises to 2.15%. the September and December
Eurodollar futures are 97.85 and 97.45 respectively.
Assuming the company intends to fully hedge his interest rate exposure
via September futures contract, calculate the number of contracts he
needs to execute:
A. 25
B. 52
C. 100
D. 150
8. ABC stock price is currently USD 67.1 call option contracts with 2
months until expiration and a strike price of USD 70 cost USD 3.15x100
(for the underlying shares )= USD 315 for contract. ( a stock option
contract is the option to buy 100 shares so you must multiply the
contract by100 to get the total price.) there is no arbitrage profit unless
the ABC stock price .
A. Falls below USD 67.00
B. Stays below USD 70.00
C. Stays between USD 70.00 and USD 73.15
D. Shoots past USD 73.15

Chap.4 Options
9. There is positive relationship between the value of a call option and ____
I.
Interest rates
II.
Time to expiration of the call option

III.
IV.

10.Which
I.
II.
III.
IV.

Dividend rate of the underlying stock


Volatility of the underlying stock
A. I, II and III
B. I ,III and IV
C. I, II and IV
D. II, III and IV
of the following statements are not true about theta and Vega ?
Theta measures the change in asset price with respect to time
while Vega measures the volatility of the options portfolio
Theta is always negative since it is the time decay
Vega is the same for both calls and puts and is always positive
Every option will have theta and Vega
A.
B.
C.
D.

I and II
I,II and III
I,III and IV
II,III and IV

11.Which of the following will increase the value of both a call and a put
option ?
A. Increase in the exercise price
B. Increase in volatility
C. Increase in interest rates
D. Decrease in time to maturity
12.Which of the following about zero cost options is/true ?
I.
Since the option is zero cost ,we can buy as much as possible to
take advantage of its zero cost structure without having to worry
about the risk associated with it
II.
Zero cost structures give as the unlimited profit but limited
losses
III.
Only certain for assets an you structure a zero cost option
strategy
IV.
This is the best form of strategy in the whole of options trading
and we should recommend all our clients to buy this structure
A. I and II
B. II and III
C. II,III and IV
D. None of the above
13.A trader buys a Nikkei 225 futures at 10000, a put struck at 9500
(premium is 200) and sells a call struck at 10500 (premium is 190, what
is the synthetic position created by the trader ?
A. Bull spread
B. Bear spread
C. Ratio put spread
D. Short call

Chap 5 Warrants and other investments products


14.The warrants premium is affected by:
I.
The length of time before expiration date
II.
The size of the cash dividends paid on the underlying share
III.
The intrinsic value of the warrants
IV.
The number of warrants issued by the company
A. I,II and III
B. I,III and IV
C. I,II,III and IV
15.A warrants with an exercise price of $1.00 is trading at $1.20. one
warrants converts to one share .what is its conversion price?
A. $1.00
B. $1.20
C. $ 2.20
D. $0.20

16.A warrants is trading at $0.40. the exercise price is $0.80. the share
price is $2.40. what is its gearing?
A. 2x
B. 6x
C. 3x
D. 5x
17.Company As warrants is trading at $0.35, its exercise price is $0.50.
while the share price is $0.65. what is its intrinsic value?
A. $0.85
B. $0.15
C. $0.30
D. $1.00
18.The market price of company Bs common share is $0.50 while the
price of the warrant is a $3.50. Two warrants can be converted into one
common share. The warrant price is currently trading at $2. What is the
warrant premium ?
A. 10%
B. 50%
C. 57%
D. 100%

Chap.6 Structured products


19.Which of the following is considered as a form of structured products?
I.
A combination of a bond and a call option where by the coupon
payment of the bond is used to purchase the option contracts
II.
A basket of bonds used as collateral to provide guarantee on
credit risk of external companies and in return for receiving
premium from those companies
III.
A derivative contract on commodities
A.
B.
C.
D.

I only
II only
I and II only
All of the above

20.Understanding a structured product is important to determine suitability


to the investor because:
A. It is complex product with various risks and features that
may not be transparent

B. It is difficult to determine the investment objective of the


product
C. It is important to know what collateral are involved in
providing the guarantee on the product
D. All of the above

Chap.7 Structured notes


21.The underlying instrument of a structured note could products relating
to movements of:
A. Interest rates
B. Equities indices
C. Credit markets
D. All of the above
22.It is advisable for an investor to consider which of the following before
investing in a structured note?
I.
Own liquidity needs
II.
Terms and condition of the structured note
III.
Fees and charges of the structured note
IV.
Risk and return
A. I and II
B. II and III
C. I ,II and III
D. All of the above
23.A range accrual note is a structured note where a client receives a
higher return if :
A. The reference index is within a certain range
B. The reference index is beyond a certain range
C. Interest rate is within certain range
D. Interest rate is beyond certain range
24.The price of the exchange traded notes is a function of :

I.
II.
III.

Credit quality of the issuer


Performance of the underlying market benchmark
Transaction volume
A.
B.
C.
D.

I and II
I and III
II and III
All of the above

25.Which structured notes would typically be structured with a principal


preservation features ?
A. Bond with call option
B. Range accrual note
C. Inverse floater note
D. Exchange traded note

Chap.8 structured funds and structured ETFs


26.How are derivative used within a structured fund?
I.
Derivatives are used to synthetically track/ replicate the
performance of the underlying s
II.
Derivatives are used to provide a return linked to the underlying
asset of the fund
III.
Derivatives are used to protect capital of the fund
A. I only
B. I and II
C. None of these
D. All of the above
27.Which of the following parameters can be used to judge the
performance of any fund?
I.
Sharpe ratio
II.
Drawdown
III.
Excess return
IV.
share class
A. I only
B. II only
C. I,II and III
D. I,II,III and iv
28.A structured fund has the investment objective of providing a return
linked to a basket of 25 stocks from the infrastructure utilities and real
estate sectors, and a quarterly potential dividend payment. The
investment strategy involves:
I.
Notionally holding stocks that may distributed dividends in the
next quarter and also benefit from potential capital appreciation
II.
Selling call option on each stock to receive premium income and

III.

A.
B.
C.
D.

Buying put option on each stock as stop loss mechanism


If the premium paid for buying put option of all 25 stocks is
lower, do we expect dividend to be lower / higher?
Lower
Higher
Same
Not enough information provide

Chap 9 key product & investments risks


29.Which of the following statements best describes credit risk?
A. Risk relating to a credit product whereby the borrower is unable
to fulfill loan conditions due to a difficult situation
B. Risk relating to a credit rating of a structured product
C. Risk relating to a structured product that involves borrowing of
funds for its investments
D. Risk relating to the issuer of a structured product when it
involves in other credit activities as well
30.In the case of a structured product with short put option on the
securities index, what happens when theres a fall in the securities
index?
A. There is no loss to the structured product
B. The put option will be in the money and investor of the
structured product have to payout to the option buyer
C. Both the principal and return component will be definitely
affected
D. None of the above
31.Liquidity risk is a result of:
A. Too much funds in the market , hence driving up the prices of
financial instruments
B. Lack of buyer and sellers of financial instruments
C. Instrument in assets that is illiquid, for example real estate
D. Instruments in liquid assets only , for example treasury products
32.For investor who wants higher fixed returns than a straight bond
investing in a structured note that gives the high return is an option for
him when:
I.
He is aware that part or all of its investments can be lost
II.
He understands all the risk involved in the investments
III.
He understands the mechanism of the structured note
IV.
A structured note is not a good investments option for him
A. I only
B. I and II only
C. I,II and III only

D. I only
33.Market risk will impact:
A. The principal component of a structured product only
B. The return component of a structured product only
C. Both the principal and return component of a structured product
D. None of these

34.The relevant credit risks of trading a futures contract or and exchange


traded options contract is are _____
I.
II.
III.

Counterparty risk
Exchange risk
Clearing broker risk

A. I and II
B. I and III
C. II and III
D. All of the above
35.Option carry multiple risk parameters. Which of the following is true?
A. Theta risk does not measure the potential loss through time
decay
B. Rho risk is associated with volatility
C. Delta risk cannot be hedged
D. Vega is associated with volatility which is the major trading risk
in option
36.With DV01 of USD 10000 the position size of a 1 year instrument is
limited to USD 100 million ( I . e every basis point move would
generate USD 10000 profit or loss for the position). With the same DV01
of $USD10000 the size of a 5 year instrument will be limited to:
A. USD 100 million
B. USD 200 million
C. USD 50 million
D. USD 20 million

Chap.10 Comparison of different types of structured products


37.A reverse convertible is constructed using:
A. A long zero coupon bond and short put option
B. A short zero coupon bond and short put option
C. A long zero coupon bond and long put option
D. A short zero coupon bond and long put option

Chap 11 Knock-out products


38.For a single knock out call barrier option, the barrier level is:
A. Call price <strike price
B. Call price_<strike price
C. Call price >strike price
D. Call price _>strike price
39.Which of the following statements is CORRECT?
I.
For a Category N callable bull/bear contract (CBBC) there is never
any residual value when a mandatory call event occurs.
II.
For a Category R CBBC there is always positive residual value
when a mandatory call event occurs.
III.
For a Category N CBBC call price is always equal to the strike
price
IV.
For a Category R CBBC call price is always different from and not
equal to the strike price.
A. I and II
B. II and III
C. III and IV
D. I,III and IV
40.Ina double knock out barrier option, the barrier levels:
A. For both barriers are higher than the strike price for a call option.
B. For both barriers are lower than the strike price for a call option.
C. Vary there are 2 strike price and there is 1 barriers level for each
strike price.
D. Vary there is 1 barrier level above the strike price and another
barriers level for below strike price.

41.All the following are common features of callable bull/bear contracts


(CBBC) and structured warrants except one. Which characteristics is
TRUE for CBBC products but NOT for structured warrants?
A. Call price specified
B. Fixed maturity period
C. No margin requirement
D. Traded on an exchange
42.Which barrier option work like simple European style option where by
they operate as if they are Out of the Money (OTM) and become active
when the spot price hits the strike price ?
A. Down & In calls and Down & Out puts.
B. Down & In puts and Up & In calls
C. Down & Out calls and Up & Out puts
D. Down & Out puts and Up & Out calls

Chap 12 Contracts for Differences (CFDs)


43.If an investor has a negative view on a stock and believes the stock
price will fall, he can execute a profitable trade with:
A. Callable bull/bear contracts
B. CFDs

C. Options
D. All of the above
44.Which statements regarding CFDs and stock futures is INCORRECT?
A. CFDs have counterparty risk but stock futures do not
B. CFDs can be extended by the investor for as long as the investor
wishes but stock futures have a fixed maturity date
C. CFDs have implicit financing cost as part of its price and stock
futures financing cost is explicitly computed
D. CFDs are entitled to dividends and stock futures have no
dividends entitlements
45.Trading in a CFD in an international stock outside the investors home
country can give rise to:
A. Currency risk
B. Liquidity risk
C. Market risk
D. All of the above
46.An investor holding a CFD trading can use a stop loss order and :
I.
It will always be executed when the market stock price hits the
stop loss price.
II.
It may not always be executed in a volatile market as the stop
loss price may not be hit
III.
To ensure further safety the investor should use a guaranteed
stop loss as the order will be executed once the price is reached
The CFD margin requirement can be lower than a position without a
stop loss order
A.
B.
C.
D.

I and III
I,III and IV
II and III
II,III and IV

47.An investor using a CFD trading strategy involving dividend capture


should look for companies:
A. That are start ups and early growth stage.
B. That do stock splits and issue scrip dividends regularly
C. That have strong earnings and a high payout ratio
D. Whose price performance is strongly driven by macro economic
factors

Chap 13 extended settlement (ES) contracts


48.A player in the financial markets who sells Es contracts to manage his
each market exposure while holding underlying stock is a /an :
A. Arbitrageur
B. Hedger
C. Market maker
D. Speculator
49.Which statement regarding Es contracts procedures is CORRECT?
A. ES contracts trading schedule is flexible and can be done
according to the date and time set by the brokerage firm for
individual contracts
B. First trading day is the 15th of the month immediately preceding
the contracts month
C. If all position on outstanding Es contracts have been settled, it
may be removed from quotation by SGX
50.Settlement of an ES contracts is done on:
A. Last Trading Day (LTD)
B. Last Trading Day + 1 (LTD + 1)
C. Last Trading Day + 2 (LTD + 2)
D. Last Trading Day + 3 (LTD +3)
51.If there is a margin call for an Es contracts position and the client
indicates that the margin amount is forthcoming within the T +2 period
,new orders may be accepted if they are:
A. Risk increasing
B. Risk neutral
C. Risk reducing
D. All of the above

52.An investor enters into a long Es contracts for 1000 shares of company
A at $ 15/shares .The maintenance margin is 10% .after a weak, the
price of the share is $14. What is the investor s required margin?
A. $1400
B. $1500
C. $2000
D. $2400