Sample Exam Questions

1. Financial instruments that are characterized by easy conversion to cash and come in the form of Treasury Bills, Money Market Mutual Funds and Certificates of Deposits are called:

A. Cash equivalents
B. Stocks
C. Derivatives
D. Zero-coupon Bonds

2. The act of reducing a loss by taking a position in derivatives that balances out or significantly reduces the risk of the current position held in the market is called:

A. Day trading
B. Speculation
C. Hedging
D. Position taking

3. Of the many internal control problems inherent in the Barings case, the one control weakness that is most evident is:

A. Access to the accounting system
B. No risk management reports
C. Lack of segregation of duties
D. Excessive positions in the market

4. A Swaption contract is:

A. A swap that has not reached effective date and is used in refinancing.
B. A contract that combines a swap and option and gives the buyer of the contract the right to enter into the swap but not the obligation.
C. A swap in which counterparties exchange floating rate cash flows.
D. A swap in which counterparties exchange floating rate cash flows based on two different countries.

5. A short call option written against a security that is already owned is termed a:

A. Covered Call
B. Naked Option
C. Collar
D. Lost Premium

6. Selling a call without upside protection and/or selling a put without downside protection is referred to as being:

A. Stripped
B. Naked
C. Hedged
D. Covered

Answers: Q1 = A, Q2 = C, Q3 = C, Q4 = B, Q5 = A, Q6 = B

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