Treasury Management
Final Exam Questions
Course Introduction
Treasury Management explores the principles and practices used by organizations to effectively manage their financial assets, liabilities, and liquidity. The course covers topics such as cash management, short-term investments, funding strategies, risk management, and the use of banking services and technology in treasury operations. Students will examine the roles and responsibilities of corporate treasurers, methods for optimizing cash flow, and techniques for hedging against financial risks, such as interest rate and currency fluctuations. Case studies and practical exercises provide insights into contemporary treasury challenges, regulatory considerations, and strategic decision-making in a global financial environment.
Recommended Textbook
Introduction to Derivatives and Risk Management 9th Edition by Don M. Chance
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16 Chapters
945 Verified Questions
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Chapter 1: Introduction
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Sample Questions
Q1) When the law of one price is violated in that the same good is selling for two different prices, an opportunity for what type of transaction is created?
A) return-to-equilibrium transaction
B) risk-assuming transaction
C) speculative transaction
D) arbitrage transaction
E) none of the above
Answer: D
Q2) Speculation is equivalent to gambling.
A)True
B)False
Answer: False
Q3) The law of one price states that the price of an asset cannot change.
A)True
B)False Answer: False
Q4) A risk premium is the additional return investors expect for assuming risk.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Structure of Options Markets
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Sample Questions
Q1) The bid price is the price paid to buy an option from a market maker.
A)True
B)False
Answer: False
Q2) 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
Answer: D
Q3) 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
Answer: D
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Chapter 3: Principles of Option Pricing
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60 Flashcards
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Sample Questions
Q1) If one portfolio always provides a return at least as high as another portfolio, then that portfolio will have a price no less than that of the other portfolio.
A)True
B)False
Answer: True
Q2) Consider a portfolio consisting of a long call with an exercise price of X, a short position in a non-dividend paying stock at an initial price of S<sub>0</sub>, and the purchase of riskless bonds with a face value of X and maturing when the call expires. What should such a portfolio be worth?
A) C + P - X(1 + r)<sup>-T</sup>
B) C - S<sub>0</sub>
C) P - X
D) P + S<sub>0</sub> - X(1 + r)<sup>-T</sup>
E) none of the above
Answer: E
Q3) A stock is equivalent to a long call, short put and long risk-free bond.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Option Pricing Models: The Binomial Model
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Sample Questions
Q1) When the hedge ratio is adjusted in the binomial model, the transactions must be done in the option.
A)True
B)False
Q2) Put-call parity holds within a two period binomial model.
A)True
B)False
Q3) If there is one period remaining and no possibility of the option expiring in-the-money, the hedge ratio will be zero.
A)True
B)False
Q4) The values of u and d are which of the following?
A) the return on the stock if it goes up and down, respectively
B) the inverse of the ratio of the up and down probabilities, respectively, and the risk-free rate
C) the normal probabilities of up and down movements, respectively
D) one plus the return on the stock if it goes up and down, respectively
E) none of the above
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6
Chapter 5: Option Pricing Models: The
Black-Scholes-Merton Model
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Sample Questions
Q1) A riskless hedge requires more shares of stock than call options.
A)True
B)False
Q2) The time to expiration of an option is based on a 360-day year.
A)True
B)False
Q3) The binomial model always gives the same option price as the Black-Scholes-Merton model.
A)True
B)False
Q4) An approximate implied volatility for an at-the-money call can be solved directly.
A)True
B)False
Q5) One of the variables that influences the price of the option is the expected return on the stock.
A)True
B)False
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Chapter 6: Basic Option Strategies
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Sample Questions
Q1) An investor can construct a synthetic put by buying a call and selling short a stock.
A)True
B)False
Q2) Each of the following is a bullish strategy except
A) a long call
B) a short put
C) a short stock
D) a protective put
E) none of the above
Q3) A protective put can be profitable during a bull market, while a covered call is profitable only in a bear market.
A)True
B)False
Q4) The break-even stock price equation is similar for both calls and puts, the strike price plus the option premium.
A)True
B)False
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Chapter 7: Advanced Option Strategies
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Sample Questions
Q1) One of the risks of a calendar spread is that the intrinsic values may be different.
A)True
B)False
Q2) Which of the following have similar profit graphs?
A) call bull spread and long box spread
B) put bear spread and short box spread
C) butterfly spread and ratio spread
D) calendar spread and call bear spread
E) none of the above
Q3) There are three breakeven stock prices in a butterfly spread.
A)True
B)False
Q4) At the expiration of a box spread, at most there will be only one option exercised.
A)True
B)False
Q5) Buying a put money spread is a bearish strategy.
A)True
B)False
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Chapter 8: Structure of Forward and Futures Markets
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Sample Questions
Q1) Variation margin is which of the following?
A) the difference in margin between hedger and speculator
B) margin differences according to trading style
C) margin deposited as a result of marking-to-market
D) margin set by the variability of a futures price
E) none of the above
Q2) Scalping is a colorful term used to describe a futures trading style that involves aggressive, emotional trading.
A)True
B)False
Q3) Most futures contracts are closed by A) delivery
B) offset
C) exercise
D) default
E) none of the above
Q4) Many futures contracts specify that there are several grades of a commodity that are acceptable for delivery.
A)True
B)False
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Chapter 9: Principles of Pricing Forwards, Futures and Options on Futures
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Sample Questions
Q1) The daily settlement brings the value of a futures contract back to zero.
A)True
B)False
Q2) The price of a futures contract that expires immediately is the spot price.
A)True
B)False
Q3) The Black formula prices an option on an instrument with a positive cost of carry.
A)True
B)False
Q4) What would be the spot price if a stock index futures price were $75, the risk-free rate were 10 percent, the continuously compounded dividend yield is 3 percent, and the futures contract expires in three months?
A) $73.70
B) $77.48
C) $72.60
D) $76.32
E) none of the above
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Chapter 10: Futures Arbitrage Strategies
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Sample Questions
Q1) Determine the annualized implied repo rate on a Treasury bond spread in which the March is bought at 98.7 and the June is sold at 99.5. The March CF is 1.225 and the June CF is 1.24. The accrued interest as of March 1 is 0.75 and the accrued interest as of June 1 is 1.22.
A) 5.21 percent
B) 10.03 percent
C) 1.28 percent
D) 2.42 percent
E) 0.81 percent
Q2) It is important to identify the cheapest bond to deliver because it is the one the futures contract is priced off of.
A)True
B)False
Q3) The most common means of financing a cash-and-carry arbitrage is a repurchase agreement.
A)True B)False
Q4) The coupon assumption for the conversion factor is 8 percent.
A)True
B)False
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Chapter 11: Forward and Futures Hedging, Spread, and Target Strategies
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Sample Questions
Q1) A hedge reduces risk because the futures price is less volatile than the spot price. A)True
B)False
Q2) You hold a stock portfolio worth $15 million with a beta of 1.05. You would like to lower the beta to 0.90 using S&P 500 futures, which have a price of 460.20 and a multiplier of 250. What transaction should you do? Round off to the nearest whole contract.
A) sell 130 contracts
B) sell 9,778 contracts
C) sell 20 contracts
D) buy 50,000 contracts
E) sell 50,000 contracts
Q3) A hedge that involves the use of a futures contract on an instrument that is different from the instrument being hedged is called a cross hedge.
A)True
B)False
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Page 13
Chapter 12: Swaps
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Sample Questions
Q1) The difference between the swap rate and the rate on a Treasury security of the same maturity is called the
A) swap spread
B) risk premium
C) swap basis
D) settlement spread
E) LIBOR
Q2) The value of a floating-rate bond is par on each interest payment date.
A)True
B)False
Q3) In an index amortizing swap, the notional amount increases throughout the life of the swap.
A)True
B)False
Q4) The underlying amount of money on which the swap payments are made is called
A) settlement value
B) market value
C) notional amount
D) base value
E) equity value
Page 14
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Chapter 13: Interest Rate Forwards and Options
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Sample Questions
Q1) Receiver swaptions allow a firm to receive a floating rate.
A)True
B)False
Q2) Find the rate on a pure discount loan hedged with a long FRA if the loan is for $10 million and matures in 30 days, the FRA is 30-day LIBOR, the fixed rate on the FRA is 4 percent, and LIBOR at the time the loan is taken out is 5 percent.
A) 4.87 percent
B) 0.25 percent
C) 5.18 percent
D) 4.13 percent
E) 2.04 percent
Q3) An FRA in which the rate is not set according to rates in the market is called
A) a short FRA
B) a long FRA
C) an off-market FRA
D) a hedged FRA
E) an FRA spread
Q4) An interest rate collar is the purchase of a cap and a floor.
A)True
B)False
Page 15
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Chapter 14: Advanced Derivatives and Strategies
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Sample Questions
Q1) In a weather derivative, the number of days times the average temperature above 65 degrees Fahrenheit is called
A) temperature day count
B) day-temps
C) cooling degree days
D) temp-days
E) heating degree days
Q2) A diff swap pays off in one currency based on the difference between two interest rates from different countries.
A)True
B)False
Q3) The cost of portfolio insurance is the return foregone if the market moves up.
A)True
B)False
Q4) The cost of a break forward contract is a result of the possibility of having a negative value at expiration.
A)True
B)False
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Page 16
Chapter 15: Financial Risk Management Techniques and Appplications
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Sample Questions
Q1) The risk that a party will not pay while the counterparty is sending payment is called
A) wire transfer risk
B) payment risk
C) settlement risk
D) cross-border risk
E) none of the above
Q2) One reason firms manage risk with derivatives is to lower bankruptcy costs.
A)True
B)False
Q3) A credit default swap is an ordinary swap that is subject to default.
A)True
B)False
Q4) If a firm holds a position in an option, it can delta and gamma hedge the position by adding a position in another option.
A)True
B)False
Q5) Conditional Value at Risk is the expected loss, given that a loss occurs.
A)True B)False
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Chapter 16: Managing Risk in an Organization
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Sample Questions
Q1) Which of the following statements is not true about fair value hedges?
A) it requires a method of determining the fair value of the derivative
B) it defers recognition of all profits and losses until the hedge is terminated
C) it will cause earnings to fluctuate if hedges are not effective
D) it requires proper documentation
E) none of the above
Q2) Cash flow accounting must be used for all hedges involving cash outlays.
A)True
B)False
Q3) Procter and Gamble lost $157 million doing what?
A) speculating on a worldwide recession
B) failure to hedge their borrowing cost on a bond issue
C) speculating on foreign interest and exchange rates
D) speculating on a decrease in the federal budget deficit
E) mismanagement of a hedge fund in their pension fund
Q4) A company's auditors are not typically trained to serve in a risk management capacity.
A)True
B)False
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