the economics of money, banking, and financial markets

418 $

© 2014 Pearson Canada Inc.$

23. 
    

    If you buy a European call option on Canada bonds with a strike price of 120 assuming that
    the premium is $0, and on the maturity date the market price of Canada bonds is 123, you will
    ____ the option in order to make a profit of $____.
    A) not exercise; 3000
    B) not exercise; 3
    C) exercise; 3000
    D) exercise; 3
    Answer: C
    Diff: 3 Type: MC Page Ref: 337 - 338
    Skill: Applied
    Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
    manage interest-rate and foreign-exchange risk

    
    


24. 
    

    If you buy a European call option on Canada bonds with a strike price of 110 assuming that
    the premium is $0, and on the maturity date the market price of Canada bonds is 117, you will
    ____ the option in order to make a profit of $____.
    A) not exercise; 7000
    B) not exercise; 7
    C) exercise; 7000
    D) exercise; 7
    Answer: C
    Diff: 3 Type: MC Page Ref: 337 - 338
    Skill: Applied
    Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
    manage interest-rate and foreign-exchange risk

    
    


25. 
    

    If you buy an option to buy Canada futures at 115, and at expiration the market price is 110,
    ____.
    A) the call will be exercised
    B) the put will be exercised
    C) the call will not be exercised
    D) the put will not be exercised
    Answer: C
    Diff: 3 Type: MC Page Ref: 337 - 338
    Skill: Applied
    Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
    manage interest-rate and foreign-exchange risk