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- Use an appropriate graph to show the profits and losses for the buyer of a call option and the
buyer of a futures contract, when the price of the future and the exercise price of the option is
115 and the premium is equal to $2000.
Answer: Students should use a graph similar to the one on page 363 and show the profit and loss
of from the options and futures contract bought at 115.
Diff: 3 Type: SA Page Ref: 338
Skill: Applied
Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
manage interest-rate and foreign-exchange risk
14.6 Swaps
A financial contract that obligates one party to exchange a set of payments it owns for another
set of payments owned by another party is called a ____.
A) cross hedge
B) cross call option
C) cross put option
D) swap
Answer: D
Diff: 1 Type: MC Page Ref: 342
Skill: Recall
Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
manage interest-rate and foreign-exchange risk
A swap that involves the exchange of a set of payments in one currency for a set of payments
in another currency is a(n) ____.
A) interest rate swap
B) currency swap
C) swaption
D) national swap
Answer: B
Diff: 1 Type: MC Page Ref: 342
Skill: Recall
Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
manage interest-rate and foreign-exchange risk