Learning Module 2 Forward Commitment and Contingent Claim Features and Instruments

According to Learning Module 2, what is the payoff at maturity for a long forward contract on an underlying asset with forward price F0(T) when the spot at maturity is ST?

An investor buys a European call with strike X = 50 and premium c0 = 4. At maturity the underlying is ST = 57. What is the investor's profit (ignoring discounting)?

Which equation correctly gives the no-arbitrage forward price for an underlying with spot S0, risk-free rate r (discrete), and no other cash flows, over T periods?

A commodity has S0 = 120, storage cost payable at T equal to 3, and risk-free rate r = 2% for 1 year. What is the one-year forward price F0(T) ignoring convenience yield (discrete compounding)?

Which of these best describes the replication of a long forward position on a non-dividend-paying stock commencing today and maturing at T?

A forward contract to buy 500 shares at F0(T) = 40 was agreed when S0 = 38 and implied r for the period = 5% (discrete) for T = 1. What was the forward price that satisfies no-arbitrage? (Round to two decimals.)

Which of these is a defining operational difference between futures and forwards described in the module?

An option buyer pays premium p0. Under what condition does a long put buyer earn a positive profit at expiry (ignoring time value of money)?

A forward contract on an asset with known dividend D paid at time t1 < T has spot S0 and risk-free rate r. Which expression best gives the forward price F0(T) (discrete compounding) assuming dividend PV is known?

Consider a non-dividend paying stock with S0 = 60. The annualized risk-free rate is 3%, and T = 0.5 years. What forward price F0(T) (discrete)?

In Example 3 of the module, Procam's futures margin account receives daily variation margin. If Procam's futures price rises by $5 per ounce on a day for 100 ounces, how much is credited to margin account that day?

Which statement best characterizes basis risk as defined in the module?

Which hedge accounting designation should a corporation use if it converts variable cash flows on a floating-rate loan into fixed payments using an interest rate swap?

A CDS protection buyer pays a fixed spread to a protection seller. If the underlying issuer's CDS spread widens significantly before a credit event, how does this affect MTM for the buyer and seller?

A three-month USD/EUR forward uses continuous compounding: F0 = S0 * e^{(r_USD - r_EUR)T}. If S0 = 1.10 USD/EUR, r_USD = 0.5% p.a., r_EUR = -0.25% p.a., and T = 0.5, compute F0 approximately.

Which of the following best explains why futures and forward prices may differ for otherwise identical contracts?

An investor holds a long asset position and simultaneously sells a forward at F0(T). If F0(T) > S0 and r > 0, what is the combined (net) return at maturity relative to initial outlay according to the module?

A one-year bond with annual coupon 4% has price 101 per 100 par. The one-year zero rate is therefore approximately?

Using bootstrapping, if a 1-year zero rate z1 = 2% and a 2-year annual coupon bond pays 3% and sells for price 98.5 per 100 par, what is the implied 2-year zero rate z2? (Approximate.)

Which expression gives the implied forward rate IFR_{A,B-A} in terms of zero rates zA and zB (discrete compounding)?

A bank enters a 3m/6m FRA with notional 10,000,000 and agreed fixed rate IFR = 1.5% (actual/360). At settlement the 3-month MRR set at 1.0%. What is the net payment at period end before discounting?

Which of the following best explains the convexity bias between FRA and interest-rate futures?

A farmer wants to hedge the price of 10,000 bushels of wheat to be sold in 6 months. According to the module, which derivative is most appropriate to create a firm commitment to deliver at a pre-agreed price?

An option seller receives premium 6. A call buyer exercises when ST = 60 and strike X = 50. What is the seller's profit per option (ignore discounting)?

Which of the following is a non-cash benefit of holding a physical commodity that can reduce forward/futures prices relative to cost-inclusive levels?

A three-month futures contract on an equity index with S0 = 2,400 has an implied annual dividend yield of 2% and risk-free rate 4% (annual continuous). Using continuous compounding, approximate the futures price f0(T) for T = 0.25 years.

Which statement about option sellers and contingent claims counterparty credit risk is consistent with the module?

A trader notes that futures prices and interest rates are positively correlated. For a long position in the underlying with a choice between a forward and futures, which is preferable per the module and why?

Which of the following best describes a swap from the module perspective?

An investor wants to synthetically create a long forward using options (European) and the underlying at t=0. Which position replicates a long forward per put-call parity theory (ignoring PV of strike)?

A futures contract on gold has daily settlement; at t = 0 a trader posts initial margin 5,000. Over the life of contract the trader experiences daily losses totaling 1,200 paid as margin calls and later receives final margin return of 4,200 at settlement. What is the net cash cost to the trader from margining (sum of cash calls less return)?

A firm's treasurer wants hedge accounting for a derivative that locks cash flows of forecasted foreign sales. Which hedge designation is most appropriate per the module?

A trader can borrow at the risk-free rate r to buy spot asset today S0 and simultaneously sell a forward for delivery at F0(T). If the observed spot S0 is less than discounted known future ST(1 + r)^{-T}, what arbitrage strategy will yield riskless profit per the module?

A CDS contract notional is 10,000,000 and LGD is 60%. If a credit event occurs, what payment does the protection seller owe the buyer?

Which of the following is a correct statement about initial value at inception for a forward or futures contract?

Viswan Family Office owns 10,000 shares and wants to maintain exposure but reduce downside for six months. Which strategy from module best fits: buy put, sell call, or short futures? Choose best single answer.

A forward contract seller has position payoff at maturity of F0(T) - ST. If ST rises by 10%, what happens to seller payoff assuming F0(T) fixed?

Which of the following is TRUE about swap valuation at inception per the module?

If a market's interest rates are constant over time, how do forward and futures prices compare for identical contracts according to the module?

A 6-month forward on a stock with S0=80, expected dividend paid at 3 months of 1.50 (PV discounted at r), and r=2% (annual, discrete). If PV(dividend)=1.49, what is forward F0(T)?

Which of the following best describes the role of a central counterparty (CCP) in derivatives markets according to the module?

A trader estimates an implied forward (1y1y) using z1 = 2% and z2 = 3%. Compute the implied 1-year forward rate starting in 1 year (IFR1,1) approximated.

Which of the following statements about embedded derivatives is consistent with the module?

If a forward contract buyer has value Vt(T) = St - PVt(F0(T)), what sign of Vt(T) indicates a mark-to-market gain to the buyer?

An option buyer paid premium 10 for a put with X = 70. At expiry ST = 65. What is put buyer's profit?

Which scenario best demonstrates price discovery function of derivatives per the module?

An investor sells a put option (short put) and simultaneously takes a short forward with same strike/price equal to F0(T). What combination replicates a covered short position equivalent per relationships in module?

Which of the following best captures 'convenience yield' impact on futures relative to cost-inclusive pricing?

An investor sells a forward on a stock and simultaneously buys the stock S0 financed by borrowing at r. Assuming no other costs and F0(T)=S0(1+r)^T, what is the investor's net wealth at T if ST equals the realized spot?

A futures contract on a short-term rate is quoted as price 98.25. According to the module's expression for interest-rate futures, what is the implied rate?