Test Bank For An Introduction to Derivatives and Risk Management 10th Edition By Don M

Test Bank For An Introduction to Derivatives and Risk Management 10th Edition By Don M

CHAPTER 2:  STRUCTURE OF OPTIONS MARKETS

MULTIPLE CHOICE TEST QUESTIONS

1. Identify the true statement regarding the largest derivatives exchanges.

a. CME Group is one of the top five largest derivatives exchanges, based on volume

b. Intercontinental Exchange is one of the top five largest derivatives exchanges, based on volume

c. The volume of trading exceeded one billion on each of the top five derivatives exchanges

d. Among the top 20 derivatives exchanges, several different continents are represented

e. all of the above

2. A call option priced at $2 with a stock price of $30 and an exercise price of $35 allows the holder to buy the stock at

a. $2

b. $32

c. $33

d. $35

e. none of the above

3. A put option in which the stock price is $60 and the exercise price is $65 is said to be

a. in-the-money

b. out-of-the-money

c. at-the-money

d. exercisable

e. none of the above

4. Organized options markets are different from over-the-counter options markets for all of the following reasons except

a. exercise terms

b. physical trading floor

c. regulation

d. standardized contracts

e. credit risk

5. The number of options acquired when one contract is purchased on an exchange is

a. 1

b. 5

c. 100

d. 500

e. 8,000

6. The advantages of the over-the-counter options market include all of the following except

a. customized contracts

b. privately executed

c. freedom from government regulation

d. lower prices

e. none of the above

7. Which one of the following is not a type of transaction cost in options trading?

a. the bid-ask spread

b. the commission

c. clearing fees

d. the cost of obtaining a quote

1. all of the above

8. If the market maker will buy at 4 and sell at 4.50, the bid-ask spread is

a. 8.50

b. 4.25

c. 0.50

d. 4.00

e. none of the above

9. Which of the following is a legitimate type of option order on the exchange?

a. purchase order

b. limit order

c. execution order

d. floor order

e. all of the above

10. The exercise price can be set at any desired level on each of the following types of options except

a. FLEX options

b. equity options

c. over-the-counter options

d. all of the above

e. none of the above

11. An investor who owns a call option can close out the position by any of the following types of transactions except

a. exercise

b. offset

c. expiring out-of-the-money

d. buying a put

e. none of the above

12. Which of the following is not the task of market makers?

a. provide liquidity

b. offer to buy and sell

c. provide price transparency

d. work as a sole specialist

e. none of the above

13. The option price is also referred to as the

a. strike

b. spread

c. premium

d. fee

e. none of the above

14. Which of the following contract terms is not set by the futures exchange?

a.the dates on which delivery can occur

b.the expiration months

c.the price

d.the deliverable commodities

e.the size of the contract

15. If an investor exercises a cash settled derivative, 

a. the transaction entails only a bookkeeping entry

b. must purchase the underlying instrument from the writer

c. immediately buy a put option to offset the call option

d. immediately write another call option to offset

e. none of the above

The “Test Bank for An Introduction to Derivatives and Risk Management, 10th Edition” by Don M. Chance and Robert Brooks is a vital educational resource designed to assist both instructors and students in understanding the complex world of derivatives and risk management. This test bank accompanies the 10th edition of the textbook, which is a widely used reference in finance courses focusing on derivatives, including options, futures, swaps, and risk management techniques.

Key Features and Content of the Test Bank:

1. Comprehensive Question Coverage:
   • The test bank includes a wide range of questions that correspond to the chapters in the textbook. These questions are designed to test students’ understanding of the fundamental concepts, theories, and applications of derivatives and risk management.
2. Variety of Question Types:
   • The test bank offers multiple types of questions, including multiple-choice, true/false, short answer, and essay questions. This variety ensures that different levels of student understanding and different cognitive skills are assessed, from basic recall of facts to in-depth analysis and application.
3. Detailed Solutions and Explanations:
   • For many questions, the test bank provides detailed solutions and explanations, particularly for more complex problems. This helps instructors in grading and provides students with a clear understanding of the correct answers and the rationale behind them.
4. Alignment with Textbook Content:
   • The questions in the test bank are carefully aligned with the chapters and sections of the 10th edition textbook. This ensures that students are tested on the material they have studied, covering all key concepts in derivatives and risk management.
5. Topics Covered:
   • The test bank covers a comprehensive range of topics, including:
     • Introduction to Derivatives: Basic concepts of derivatives, including the definition and types of derivatives such as options, futures, and swaps.
     • Pricing of Derivatives: Fundamental principles behind the pricing of derivatives, including the Black-Scholes model for options pricing, binomial models, and other pricing methods.
     • Hedging Strategies: Questions on how derivatives can be used for hedging risks, including practical scenarios where hedging strategies are applied in different market conditions.
     • Risk Management Techniques: Concepts related to the management of financial risks using derivatives, including interest rate risk, currency risk, and credit risk.
     • Market Structure and Regulation: Understanding the structure of derivative markets, including exchange-traded and over-the-counter markets, and the regulatory environment.
     • Advanced Topics: Includes more complex topics such as exotic options, credit derivatives, and the use of derivatives in portfolio management.
6. Practical Application Scenarios:
   • Many questions are based on real-world scenarios, allowing students to apply theoretical knowledge to practical situations. This not only tests their understanding but also prepares them for real-life applications in finance and risk management.
7. Assessment of Quantitative Skills:
   • The test bank includes numerous quantitative problems that require students to perform calculations related to derivative pricing, risk assessment, and the application of financial models. This emphasizes the development of practical skills alongside theoretical knowledge.
8. Instructor Flexibility:
   • Instructors can select and customize questions based on the specific focus of their course, whether it is more theoretical or application-based. The variety of question types and topics covered allows for a tailored approach to assessments.
9. Difficulty Levels:
   • The test bank includes questions of varying difficulty levels, making it suitable for use in both introductory and more advanced courses. This range allows instructors to challenge students appropriately according to their level of understanding.

Benefits of Using the Test Bank:

• Efficient Assessment Preparation: Provides a ready-made collection of questions, saving instructors significant time in preparing exams and quizzes.
• Enhanced Learning: Helps students reinforce their understanding of key concepts through practice and application.
• Comprehensive Evaluation: Ensures that all critical areas of derivatives and risk management are covered in assessments.

Conclusion:

The “Test Bank for An Introduction to Derivatives and Risk Management, 10th Edition” by Don M. Chance and Robert Brooks is an essential resource for instructors and students in finance courses. It offers a comprehensive set of questions that thoroughly cover the key topics of derivatives and risk management, ensuring that students gain a solid understanding of both the theoretical and practical aspects of the subject. This test bank is an invaluable tool for effective teaching, learning, and assessment in the field of finance.