the economics of money, banking, and financial markets

416 $

© 2014 Pearson Canada Inc.$

17. 
    

    An option that gives the owner the tight to sell a financial instrument at the exercise price
    within a specified period of time is a(n) ____.
    A) call option
    B) put option
    C) American option
    D) European option
    Answer: B
    Diff: 2 Type: MC Page Ref: 336
    Skill: Recall
    Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
    manage interest-rate and foreign-exchange risk

    
    


18. 
    

    If a bank manager wants to protect the bank against losses that would be incurred on its
    portfolio of treasury securities should interest rates rise, he could ____.
    A) buy put options on financial futures
    B) buy call options on financial futures
    C) sell put options on financial futures
    D) sell call options on financial futures
    Answer: A
    Diff: 2 Type: MC Page Ref: 340 - 341
    Skill: Applied
    Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
    manage interest-rate and foreign-exchange risk

    
    


19. 
    

    If you buy a European call option on Canada bonds with a strike price of 115 assuming that
    the premium is $0, and on the maturity date the market price of Canada bonds is 110, you will
    ____ the option and potentially make a profit of $____.
    A) not exercise; 5000
    B) not exercise; 5
    C) exercise; 5000
    D) exercise; 5
    Answer: A
    Diff: 3 Type: MC Page Ref: 337
    Skill: Applied
    Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
    manage interest-rate and foreign-exchange risk