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Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 1: Introduction Multiple Choice Test Bank: Questions 1. A one-year forward contract is an agreement where A. One side has the right to buy an asset for a certain price in one year’s time. B. One side has the obligation to buy an asset for a certain price in one year’s time. C. One side has the obligation to buy an asset for a certain price at some time during the next year. D. One side has the obligation to buy an asset for the
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  Hull: Options, Futures, and Other Derivatives, Ninth EditionChapter 1: IntroductionMultiple Choice Test Bank: uestions 1.A one-year forward contract is an agreement whereA.One side has the right to buy an asset for a certain price in one year’s time.B.One side has the obligation to buy an asset for a certain price in one year’s time.C.One side has the obligation to buy an asset for a certain price at some time during the next year.D.One side has the obligation to buy an asset for the maret price in one year’s time.!. hich of the following is #O$ true A. hen a CBO% call option on &B' is exercised( &B' issues more stoc B.An American option can be exercised at any time during its life C.An call option will always be exercised at maturity if the underlyingasset price is greater than the strie price D.A put option will always be exercised at maturity if the strie price is greater than the underlying asset price.).A one-year call option on a stoc with a strie price of *)+ costs *), a one-year put option on the stoc with a strie price of *)+ costs *. uppose thata trader buys two call options and one put option. $he breae/en stoc priceabo/e which the trader maes a pro0t isA.*)B.*+C.*)+D.*)2 .A one-year call option on a stoc with a strie price of *)+ costs *), a one-year put option on the stoc with a strie price of *)+ costs *. uppose thata trader buys two call options and one put option. $he breae/en stoc pricebelow which the trader maes a pro0t isA.*!B.*!3C.*!2D.*!+. hich of the following is approximately true when si4e is measured in termsof the underlying principal amounts or /alue of the underlying assets A.$he exchange-traded maret is twice as big as the o/er-the-countermaret.  B.$he o/er-the-counter maret is twice as big as the exchange-tradedmaret.C.$he exchange-traded maret is ten times as big as the o/er-the-counter maret.D.$he o/er-the-counter maret is ten times as big as the exchange-traded maret.2. hich of the following best describes the term 5spot price6A.$he price for immediate deli/ery B.$he price for deli/ery at a future timeC.$he price of an asset that has been damagedD.$he price of renting an asset7. hich of the following is true about a long forward contractA.$he contract becomes more /aluable as the price of the asset declinesB.$he contract becomes more /aluable as the price of the asset risesC.$he contract is worth 4ero if the price of the asset declines after thecontract has been entered intoD.$he contract is worth 4ero if the price of the asset rises after thecontract has been entered into3.An in/estor sells a futures contract an asset when the futures price is *1(++.%ach contract is on 1++ units of the asset. $he contract is closed out whenthe futures price is *1(+. hich of the following is trueA.$he in/estor has made a gain of *(+++B.$he in/estor has made a loss of *(+++ C.$he in/estor has made a gain of *!(+++D.$he in/estor has made a loss of *!(+++8. hich of the following describes %uropean options9A.old in %uropeB.:riced in %urosC.%xercisable only at maturityD.Calls ;there are no %uropean puts<1+. hich of the following is #O$ true A.A call option gi/es the holder the right to buy an asset by a certaindate for a certain priceB.A put option gi/es the holder the right to sell an asset by a certain datefor a certain priceC.$he holder of a call or put option must exercise the right to sell or buyan asset  D.$he holder of a forward contract is obligated to buy or sell an asset11. hich of the following is #O$ true about call and put options=A.An American option can be exercised at any time during its lifeB.A %uropean option can only be exercised only on the maturity dateC.&n/estors must pay an upfront price ;the option premium< for an optioncontractD.$he price of a call option increases as the strie price increases1!.$he price of a stoc on >uly 1 is *7. A trader buys 1++ call options on thestoc with a strie price of *2+ when the option price is *!. $he options areexercised when the stoc price is *2. $he trader’s net pro0t isA.*7++B.*++C.*)++D.*2++1).$he price of a stoc on ?ebruary 1 is *1!. A trader sells !++ put options onthe stoc with a strie price of *1!+ when the option price is *. $he optionsare exercised when the stoc price is *11+. $he trader’s net pro0t or loss isA.@ain of *1(+++B.oss of *!(+++C.oss of *!(3++D.oss of *1(+++1.$he price of a stoc on ?ebruary 1 is *3. A trader buys !++ put options onthe stoc with a strie price of *8+ when the option price is *1+. $he optionsare exercised when the stoc price is *3. $he trader’s net pro0t or loss isA.oss of *1(+++B.oss of *!(+++C.@ain of *!++D.@ain of *1+++1.$he price of a stoc on ?ebruary 1 is *3. A trader sells !++ put options onthe stoc with a strie price of *+ when the option price is *!. $he optionsare exercised when the stoc price is *)8. $he trader’s net pro0t or loss isA.oss of *3++B.oss of *!++C.@ain of *!++D.oss of *8++  12.A speculator can choose between buying 1++ shares of a stoc for *+ pershare and buying 1+++ %uropean call options on the stoc with a strie priceof * for * per option. ?or second alternati/e to gi/e a better outcome atthe option maturity( the stoc price must be abo/eA.*B.*2C.*D.*+17.A company nows it will ha/e to pay a certain amount of a foreign currencyto one of its suppliers in the future. hich of the following is trueA.A forward contract can be used to loc in the exchange rateB.A forward contract will always gi/e a better outcome than an optionC.An option will always gi/e a better outcome than a forward contractD.An option can be used to loc in the exchange rate13.A short forward contract on an asset plus a long position in a %uropean calloption on the asset with a strie price eual to the forward price is eui/alenttoA.A short position in a call optionB.A short position in a put optionC.A long position in a put optionD.#one of the abo/e18.A trader has a portfolio worth * million that mirrors the performance of astoc index. $he stoc index is currently 1(!+. ?utures contracts trade on theindex with one contract being on !+ times the index. $o remo/e maret risfrom the portfolio the trader shouldA.Buy 12 contractsB.ell 12 contractsC.Buy !+ contractsD.ell !+ contracts!+. hich of the following best describes a central clearing partyA.&t is a trader that wors for an exchangeB.&t stands between two parties in the o/er-the-counter maretC.&t is a trader that wors for a banD.&t helps facilitate futures trades 
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