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Multiple Choice Questions
1. Today's futures markets are dominated by trading in _______ contracts.
A. metals
B. agriculture
C. financial
D. commodity
Answer: C. financial
2. A person with a long position in a commodity futures contract wants the price of the
commodity to ______.
A. decrease substantially
B. increase substantially
C. remain unchanged
D. increase or decrease substantially
Answer: B. increase substantially
3. If an asset price declines, the investor with a _______ is exposed to the largest potential
loss.
A. long call option
B. long put option
C. long futures contract
D. short futures contract
Answer: C. long futures contract
4. The clearing corporation has a net position equal to ______.
A. the open interest
B. the open interest times 2
C. the open interest divided by 2
D. zero
Answer: D. zero
5. The S&P 500 Index futures contract is an example of a(n) ______ delivery contract. The
pork bellies contract is an example of a(n) ______ delivery contract.
A. cash; cash
B. cash; actual
C. actual; cash
D. actual; actual
Answer: B. cash; actual
6. Which one of the following contracts requires no cash to change hands when initiated?
A. Listed put option
B. Short futures contract
C. Forward contract
D. Listed call option
Answer: C. Forward contract
7. Synthetic stock positions are commonly used by ______ because of their ______.
A. market timers; lower transaction cost
B. banks; lower risk
C. wealthy investors; tax treatment
D. money market funds; limited exposure
Answer: A. market timers; lower transaction cost
8. _____________ are likely to close their positions before the expiration date, while
____________ are likely to make or take delivery.
A. Investors; regulators
B. Hedgers; speculators
C. Speculators; hedgers
D. Regulators; investors
Answer: C. Speculators; hedgers
9. Futures contracts have many advantages over forward contracts except that _________.
A. futures positions are easier to trade
B. futures contracts are tailored to the specific needs of the investor
C. futures trading preserves the anonymity of the participants
D. counterparty credit risk is not a concern on futures
Answer: B. futures contracts are tailored to the specific needs of the investor
10. An investor who is hedging a corporate bond portfolio using a T-bond futures contract is
said to have _______.
A. an arbitrage
B. a cross-hedge
C. an over hedge
D. a spread hedge
Answer: B. a cross-hedge
11. The open interest on silver futures at a particular time is the number of __________.
A. all outstanding silver futures contracts
B. long and short silver futures positions counted separately on a particular trading day
C. silver futures contracts traded during the day
D. silver futures contracts traded the previous day
Answer: A. all outstanding silver futures contracts
12. An investor who goes short in a futures contract will _____ any increase in value of the
underlying asset and will _____ any decrease in value in the underlying asset.
A. pay; pay
B. pay; receive
C. receive; pay
D. receive; receive
Answer: B. pay; receive
13. An investor who goes long in a futures contract will _____ any increase in value of the
underlying asset and will _____ any decrease in value in the underlying asset.
A. pay; pay
B. pay; receive
C. receive; pay
D. receive; receive
Answer: C. receive; pay
14. The advantage that standardization of futures contracts brings is that _____ is improved
because ____________________.
A. liquidity; all traders must trade a small set of identical contracts
B. credit risk; all traders understand the risk of the contracts
C. pricing; convergence is more likely to take place with fewer contracts
D. trading cost; trading volume is reduced
Answer: A. liquidity; all traders must trade a small set of identical contracts
15. The fact that the exchange is the counterparty to every futures contract issued is important
because it eliminates _________ risk.
A. market
B. credit
C. interest rate
D. basis
Answer: B. credit
16. In the futures market the short position's loss is ___________ the long position's gain.
A. greater than
B. less than
C. equal to
D. sometimes less than and sometimes greater than
Answer: C. equal to
17. A wheat farmer should __________ in order to reduce his exposure to risk associated with
fluctuations in wheat prices.
A. sell wheat futures
B. buy wheat futures
C. buy a contract for delivery of wheat now and sell a contract for delivery of wheat at harvest
time
D. sell wheat futures if the basis is currently positive and buy wheat futures if the basis is
currently negative
Answer: A. sell wheat futures
18. Which of the following provides the profit to a long position at contract maturity?
A. Original futures price - Spot price at maturity
B. Spot price at maturity - Original futures price
C. Zero
D. Basis
Answer: B. Spot price at maturity - Original futures price
19. You take a long position in a futures contract of one maturity and a short position in a
contract of a different maturity, both on the same commodity. This is called a __________.
A. cross-hedge
B. reversing trade
C. spread position
D. straddle
Answer: C. spread position
20. Interest rate futures contracts exist for all of the following except __________.
A. federal funds
B. Eurodollars
C. banker's acceptances
D. repurchase agreements
Answer: D. repurchase agreements
21. Initial margin is usually set in the region of ________ of the total value of a futures
contract.
A. 5%-15%
B. 10%-20%
C. 15%-25%
D. 20%-30%
Answer: A. 5%-15%
22. Margin must be posted by ________.
A. buyers of futures contracts only
B. sellers of futures contracts only
C. both buyers and sellers of futures contracts
D. speculators only
Answer: C. both buyers and sellers of futures contracts
23. The daily settlement of obligations on futures positions is called _____________.
A. a margin call
B. marking to market
C. a variation margin check
D. the initial margin requirement
Answer: B. marking to market
24. Which of the following provides the profit to a short position at contract maturity?
A. Original futures price - Spot price at maturity
B. Spot price at maturity - Original futures price
C. Zero
D. Basis
Answer: A. Original futures price - Spot price at maturity
25. Margin requirements for futures contracts can be met by ______________.
A. cash only
B. cash or highly marketable securities such as Treasury bills
C. cash or any marketable securities
D. cash or warehouse receipts for an equivalent quantity of the underlying commodity
Answer: B. cash or highly marketable securities such as Treasury bills
26. An established value below which a trader's margin may not fall is called the ________.
A. daily limit
B. daily margin
C. maintenance margin
D. convergence limit
Answer: C. maintenance margin
27. Which one of the following is a true statement?
A. A margin deposit can be met only by cash.
B. All futures contracts require the same margin deposit.
C. The maintenance margin is the amount of money you post with your broker when you buy
or sell a futures contract.
D. The maintenance margin is the value of the margin account below which the holder of a
futures contract receives a margin call.
Answer: D. The maintenance margin is the value of the margin account below which the
holder of a futures contract receives a margin call.
28. At maturity of a futures contract, the spot price and futures price must be approximately
the same because of __________.
A. marking to market
B. the convergence property
C. the open interest
D. the triple witching hour
Answer: B. the convergence property
29. A futures contract __________.
A. is a contract to be signed in the future by the buyer and the seller of a commodity
B. is an agreement to buy or sell a specified amount of an asset at a predetermined price on
the expiration date of the contract
C. is an agreement to buy or sell a specified amount of an asset at whatever the spot price
happens to be on the expiration date of the contract
D. gives the buyer the right, but not the obligation, to buy an asset some time in the future
Answer: B. is an agreement to buy or sell a specified amount of an asset at a predetermined
price on the expiration date of the contract
30. Which one of the following exploits differences between actual future prices and their
theoretically correct parity values?
A. Index arbitrage
B. Marking to market
C. Reversing trades
D. Settlement transactions
Answer: A. Index arbitrage
31. Which one of the following refers to the daily settlement of obligations on future
positions?
A. Marking to market
B. The convergence property
C. The open interest
D. The triple witching hour
Answer: A. Marking to market
32. The most actively traded interest rate futures contract is for ___________.
A. LIBOR
B. Treasury bills
C. Eurodollars
D. Treasury bonds
Answer: D. Treasury bonds
33. The CME weather futures contract is an example of ______________.
A. a cash-settled contract
B. an agricultural contract
C. a financial future
D. a commodity future
Answer: A. a cash-settled contract
34. Single stock futures, as opposed to stock index futures, are _______________.
A. not yet being offered by any exchanges
B. offered overseas but not in the United States
C. currently trading on One Chicago, a joint venture of several exchanges
D. scheduled to begin trading in 2015 on several exchanges
Answer: C. currently trading on One Chicago, a joint venture of several exchanges
35. You are currently long in a futures contract. You instruct a broker to enter the short side of
a futures contract to close your position. This is called __________.
A. a cross-hedge
B. a reversing trade
C. a speculation
D. marking to market
Answer: B. a reversing trade
36. A company that mines bauxite, an aluminum ore, decides to short aluminum futures. This
is an example of __________ to limit its risk.
A. cross-hedging
B. long hedging
C. spreading
D. speculating
Answer: A. cross-hedging
37. Futures markets are regulated by the __________.
A. CFA Institute
B. CFTC
C. CIA
D. SEC
Answer: B. CFTC
38. A hog farmer decides to sell hog futures. This is an example of __________ to limit risk.
A. cross-hedging
B. short hedging
C. spreading
D. speculating
Answer: B. short hedging
39. On May 21, 2012, you could have purchased a futures contract from Intrade for a price of
$5.70 that would pay you $10 if Barack Obama won the 2012 presidential election. This tells
you _____.
A. that the market believed that Obama had a 57% chance of winning
B. that the market believed that Obama would not win the election
C. nothing about the market's belief concerning the odds of Obama winning
D. that the market believed Obama's chances of winning were about 43%
Answer: A. that the market believed that Obama had a 57% chance of winning
40. An investor would want to __________ to exploit an expected fall in interest rates.
A. sell S&P 500 Index futures
B. sell Treasury-bond futures
C. buy Treasury-bond futures
D. buy wheat futures
Answer: C. buy Treasury-bond futures
41. Forward contracts _________ traded on an organized exchange, and futures contracts
__________ traded on an organized exchange.
A. are; are
B. are; are not
C. are not; are
D. are not; are not
Answer: C. are not; are
42. If the S&P 500 Index futures contract is overpriced relative to the spot S&P 500 Index,
you should __________.
A. buy all the stocks in the S&P 500 and write put options on the S&P 500 Index
B. sell all the stocks in the S&P 500 and buy call options on S&P 500 Index
C. sell S&P 500 Index futures and buy all the stocks in the S&P 500
D. sell short all the stocks in the S&P 500 and buy S&P 500 Index futures
Answer: C. sell S&P 500 Index futures and buy all the stocks in the S&P 500
43. A long hedge is a simultaneous __________ position in the spot market and a
__________ position in the futures market.
A. long; long
B. long; short
C. short; long
D. short; short
Answer: C. short; long
44. Investors who take short positions in futures contract agree to ___________ delivery of
the commodity on the delivery date, and those who take long positions agree to __________
delivery of the commodity.
A. make; make
B. make; take
C. take; make
D. take; take
Answer: B. make; take
45. An investor would want to __________ to hedge a long position in Treasury bonds.
A. buy interest rate futures
B. buy Treasury bonds in the spot market
C. sell interest rate futures
D. sell S&P 500 futures
Answer: C. sell interest rate futures
46. Futures contracts are said to exhibit the property of convergence because
_______________.
A. the profits from long positions and short positions must ultimately be equal
B. the profits from long positions and short positions must ultimately net to zero
C. price discrepancies would open arbitrage opportunities for investors who spot them
D. the futures price and spot price of any asset must ultimately net to zero
Answer: C. price discrepancies would open arbitrage opportunities for investors who spot
them
47. In the context of a futures contract, the basis is defined as ______________.
A. the futures price minus the spot price
B. the spot price minus the futures price
C. the futures price minus the initial margin
D. the profit on the futures contract
Answer: A. the futures price minus the spot price
48. The __________ is among the world's largest derivatives exchanges and operates a fully
electronic trading and clearing platform.
A. CBOE
B. CBOT
C. CME
D. Eurex
Answer: D. Eurex
49. Violation of the spot-futures parity relationship results in _______________.
A. fines and other penalties imposed by the SEC
B. arbitrage opportunities for investors who spot them
C. suspension of delivery privileges
D. suspension of trading
Answer: B. arbitrage opportunities for investors who spot them
50. When dividend-paying assets are involved, the spot-futures parity relationship can be
stated as _________________.
A. F1 = S0(1 + rf)
B. F0 = S0(1 + rf - d)T
C. F0 = S0(1 + rf + d)T
D. F0 = S0(1 + rf)T
Answer: B. F0 = S0(1 + rf - d)T
51. An investor establishes a long position in a futures contract now (time 0) and holds the
position until maturity (time T). The sum of all daily settlements will be __________.
A. F0 - FT
B. F0 - S0
C. FT - F0
D. FT - S0
Answer: C. FT - F0
52. A short hedge is a simultaneous __________ position in the spot market and a
__________ position in the futures market.
A. long; long
B. long; short
C. short; long
D. short; short
Answer: B. long; short
53. Approximately __________ of futures contracts result in actual delivery.
A. 0%
B. less than 1% to 3%
C. less than 5% to 15%
D. less than 60% to 80%
Answer: B. less than 1% to 3%
54. A long hedger will __________ from an increase in the basis; a short hedger will
__________.
A. be hurt; be hurt
B. be hurt; profit
C. profit; be hurt
D. profit; profit
Answer: C. profit; be hurt
55. At year-end, taxes on a futures position _______________.
A. must be paid if the position has been closed out
B. must be paid if the position has not been closed out
C. must be paid regardless of whether the position has been closed out or not
D. need not be paid if the position supports a hedge
Answer: C. must be paid regardless of whether the position has been closed out or not
56. A speculator will often prefer to buy a futures contract rather than the underlying asset
because:
I. Gains in futures contracts can be larger due to leverage.
II. Transaction costs in futures are typically lower than those in spot markets.
III. Futures markets are often more liquid than the markets of the underlying commodities.
A. I and II only
B. II and III only
C. I and III only
D. I, II, and III
Answer: D. I, II, and III
57. On January 1, you sold one April S&P 500 Index futures contract at a futures price of
1,300. If the April futures price is 1,250 on February 1, your profit would be __________ if
you close your position. (The contract multiplier is 250.)
A. -$12,500
B. -$15,000
C. $15,000
D. $12,500
Answer: D. $12,500
Profit = ($1,300 - 1,250)(250) = $12,500
58. The current level of the S&P 500 is 1,250. The dividend yield on the S&P 500 is 3%. The
risk-free interest rate is 6%. The futures price quote for a contract on the S&P 500 due to
expire 6 months from now should be __________.
A. 1,274.33
B. 1,286.95
C. 1,268.61
D. 1,291.29
Answer: C. 1,268.61
F0 = S0(1 + rf - d)T = $1,250(1 + .06 - .03).5 = $1,268.61
59. The spot price for gold is $1,550 per ounce. The dividend yield on the S&P 500 is 2.5%.
The risk-free interest rate is 3.5%. The futures price for gold for a 6-month contract on gold
should be __________.
A. $1,504.99
B. $1,569.08
C. $1,554.04
D. $1,557.73
Answer: D. $1,557.73
F0 = S0(1 + rf - d)T = $1,550(1 + .035 - .025).5 = $1,557.73
60. If you expect a stock market downturn, one potential defensive strategy would be to
__________.
A. buy stock-index futures
B. sell stock-index futures
C. buy stock-index options
D. sell foreign exchange futures
Answer: B. sell stock-index futures
61. At contract maturity the basis should equal ___________.
A. 1
B. 0
C. the risk-free interest rate
D. -1
Answer: B. 0
62. You believe that the spread between the September T-bond contract and the June T-bond
futures contract is too large and will soon correct. This market exhibits positive cost of carry
for all contracts. To take advantage of this, you should ______________.
A. buy the September contract and sell the June contract
B. sell the September contract and buy the June contract
C. sell the September contract and sell the June contract
D. buy the September contract and buy the June contract
Answer: B. sell the September contract and buy the June contract
63. A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1year risk-free rate is 3%.
The arbitrage profit implied by these prices is _____________.
A. $3.27
B. $4.39
C. $5.24
D. $6.72
Answer: C. $5.24
Parity F0 = S0(1 + rf - d)T = $1,592(1 + .03 - 0)1 = $1,639.76
The arbitrage profit is $1,645 - 1,639.76 = $5.24
64. A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1year risk-free rate is 3%.
Based on the above data, which of the following set of transactions will yield positive riskless
arbitrage profits?
A. Buy gold in the spot with borrowed money, and sell the futures contract.
B. Buy the futures contract, and sell the gold spot and invest the money earned.
C. Buy gold spot with borrowed money, and buy the futures contract.
D. Buy the futures contract, and buy the gold spot using borrowed money.
Answer: A. Buy gold in the spot with borrowed money, and sell the futures contract.
Actual F0 = $1,645, but according to spot-futures parity it should be $1,639.76, so the futures
contract is overpriced. Sell futures today, and buy gold spot with borrowed money.
65. A hypothetical futures contract on a nondividend-paying stock with a current spot price of
$100 has a maturity of 1 year. If the T-bill rate is 5%, what should the futures price be?
A. $95.24
B. $100
C. $105
D. $107
Answer: C. $105
F0 = S0(1 + r)T = $100(1.05)1 = $105
66. A hypothetical futures contract on a nondividend-paying stock with a current spot price of
$100 has a maturity of 4 years. If the T-bill rate is 7%, what should the futures price be?
A. $76.29
B. $93.46
C. $107
D. $131.08
Answer: D. $131.08
F0 = S0(1 + r)4 = $100(1.07)4 = $131.08
67. On Monday morning you sell one June T-bond futures contract at 97:27, that is, for
$97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700,
and the maintenance margin requirement is $2,000 per contract. Use the following price data
to answer the following questions.
After Monday's close the balance on your margin account will be ________.
A. $2,700
B. $2,000
C. $3,137.50
D. $2,262.50
Answer: C. $3,137.50
Since the contract was sold, your margin will increase when its price falls, so it is
$2,700 + ($97,843.72 - $97,406.25) = $3,137.50
68. On Monday morning you sell one June T-bond futures contract at 97:27, that is, for
$97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700,
and the maintenance margin requirement is $2,000 per contract. Use the following price data
to answer the following questions.
At the close of day on Tuesday your cumulative rate of return on your investment is _____.
A. 16.2%
B. -5.8%
C. -.16%
D. -2.2%
Answer: B. -5.8%
Close of Monday: $2,700 + ($97,843.72 - $97,406.25) = $3,137.50
Close of Tuesday: Margin account = $3,137.50 - ($98,000 - 97,406.25) = $2,543.75
Cumulative rate of return =
69. On Monday morning you sell one June T-bond futures contract at 97:27, that is, for
$97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700,
and the maintenance margin requirement is $2,000 per contract. Use the following price data
to answer the following questions.
On which of the given days do you get a margin call?
A. Monday
B. Tuesday
C. Wednesday
D. None of these options
Answer: C. Wednesday
Your margin account falls below the maintenance margin of $2,000 after the market close on
Wednesday. The margin call will be $2,000 - [2,700 - (100,000 - 97,843.72)] =$1,456.28.
70. On Monday morning you sell one June T-bond futures contract at 97:27, that is, for
$97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700,
and the maintenance margin requirement is $2,000 per contract. Use the following price data
to answer the following questions.
The cumulative rate of return on your investment after Wednesday is a ____.
A. 79.9% loss
B. 2.6% loss
C. 33% gain
D. 53.9% loss
Answer: A. 79.9% loss
Margin account = $2,543.75 - ($100,000 - 98,000) = $543.75
Cumulative rate of return =
71. The volume of interest rate swaps increased from almost zero in 1980 to over __________
today.
A. $40 million
B. $400 million
C. $400 billion
D. $400 trillion
Answer: D. $400 trillion
72. If the risk-free rate is greater than the dividend yield, then we know that
_______________.
A. the futures price will be higher as contract maturity increases
B. F0 ST
D. arbitrage profits are possible
Answer: A. the futures price will be higher as contract maturity increases
73. Sahali Trading Company has issued $100 million worth of long-term bonds at a fixed rate
of 9%. Sahali Trading Company then enters into an interest rate swap where it will pay
LIBOR and receive a fixed 8% on a notional principal of $100 million. After all these
transactions are considered, Sahali's cost of funds is __________.
A. 17%
B. LIBOR
C. LIBOR + 1%
D. LIBOR - 1%
Answer: C. LIBOR + 1%
Before the swap Sahali pays 9%. After the swap Sahali receives 8% minus LIBOR. The cost
is of the swap is 9% - (8 - LIBOR) = LIBOR + 1%
74. Interest rate swaps involve the exchange of ________________.
A. actual fixed-rate bonds for actual floating-rate bonds
B. actual floating-rate bonds for actual fixed-rate bonds
C. net interest payments and an actual principal swap
D. net interest payments based on notional principal, but no exchange of principal
Answer: D. net interest payments based on notional principal, but no exchange of principal
75. From the perspective of determining profit and loss, the long futures position most closely
resembles a levered investment in a ____________.
A. long call
B. short call
C. short stock position
D. long stock position
Answer: D. long stock position
76. The _________ contract dominates trading in stock-index futures.
A. S&P 500
B. DJIA
C. Nasdaq 100
D. Russell 2000
Answer: A. S&P 500
77. The ________ and the _______ have the lowest correlations with the large-cap indexes.
A. Nasdaq Composite; Russell 2000
B. NYSE; DJIA
C. S&P 500; DJIA
D. Russell 2000; S&P 500
Answer: A. Nasdaq Composite; Russell 2000
78. The use of leverage is practiced in the futures markets due to the existence of _________.
A. banks
B. brokers
C. clearinghouses
D. margin
Answer: D. margin
79. You purchase an interest rate futures contract that has an initial margin requirement of
15% and a futures price of $115,098. The contract has a $100,000 underlying par value bond.
If the futures price falls to $108,000, you will experience a ______ loss on your money
invested.
A. 31%
B. 41%
C. 52%
D. 64%
Answer: B. 41%
Margin = 115,098 × .15 = 17,264.7
Loss % = (108,000 × 115,098)/17,264.7 = -41%
80. You own a $15 million bond portfolio with a modified duration of 11 years. Interest rates
are expected to increase by 5 basis points, or .05%. What is the price value of a basis point?
A. $10,400
B. $14,300
C. $16,500
D. $21,300
Answer: C. $16,500
The change in the portfolio's yield will be D* Δy = 11 × .05% = .55%. The change in the
portfolio's value will be .55% × $15 million = $82,500. PVBP = Change in portfolio value ÷
Predicted change in yield = $82,500/5 basis points = $16,500.
81. The price of a corn futures contract is $2.65 per bushel when the contract is issued, and
the commodity spot price is $2.55. When the contract expires, the two prices are identical.
What principle is represented by this price behavior?
A. Convergence
B. Margin
C. Basis
D. Volatility
Answer: A. Convergence
82. A corporation will be issuing bonds in 6 months, and the treasurer is concerned about
unfavorable interest rate moves in the interim. The best way for her to hedge the risk is to
_________________.
A. buy T-bond futures
B. sell T-bond futures
C. buy stock-index futures
D. sell stock-index futures
Answer: B. sell T-bond futures
83. A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is
$2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures
contracts on 10,000 bushels of corn.
What are the farmer's proceeds from the sale of corn?
A. $27,500
B. $31,875
C. $33,875
D. $35,950
Answer: C. $33,875
Net proceeds = (2.75 × 10,000) + (2.55 × 2,500) = 33,875
84. A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is
$2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures
contracts on 10,000 bushels of corn.
Ignoring the transaction costs, how much did the farmer improve his cash flow by hedging
sales with the futures contracts?
A. $0
B. $2,000
C. $31,875
D. $33,875
Answer: B. $2,000
Gain = (2.75 - 2.55)10,000 = 2,000
85. A bank has made long-term fixed-rate mortgages and has financed them with short-term
deposits. To hedge out its interest rate risk, the bank could ________.
A. sell T-bond futures
B. buy T-bond futures
C. buy stock-index futures
D. sell stock-index futures
Answer: A. sell T-bond futures
86. A market timer now believes that the economy will soften over the rest of the year as the
housing market slump continues, and she also believes that foreign investors will stop buying
U.S. fixed-income securities in the large quantities that they have in the past. One way the
timer could take advantage of this forecast is to ________________.
A. buy T-bond futures and sell stock-index futures
B. sell T-bond futures and buy stock-index futures
C. buy stock-index futures and buy T-bond futures
D. sell stock-index futures and sell T-bond futures
Answer: D. sell stock-index futures and sell T-bond futures
87. The Student Loan Marketing Association (SLMA) has short-term student loans funded by
long-term debt. To hedge out this interest rate risk, SLMA could:
I. Engage in a swap to pay fixed and receive variable interest payments
II. Engage in a swap to pay variable and receive fixed interest payments
III. Buy T-bond futures
IV. Sell T-bond futures
A. I and II only
B. I and IV only
C. II and III only
D. II and IV only
Answer: C. II and III only
Test Bank for Essentials of Investments
Zvi Bodie, Alex Kane, Alan Marcus
9780078034695, 9789389957877, 9781264140251, 9781260316148, 9780073382401, 9780078034695, 9781260013924, 9780077835422
