Chartered Financial Analyst Level I Derivatives and Risk Management

1.Alma will sell her corn in four months. She wants no daily cash margin and will accept the buyer's default risk. Which contract does she use?

2.Bianca will sell corn in four months. She can fund margin and wants the clearinghouse between the two sides. Which contract does she use?

3.Caleb owns a call struck at 35. At expiration the share is 40. What is the call payoff per share?

4.Dahlia paid a premium of 3 for a call. At expiration that call's payoff is 5. What is her profit per share?

5.Elias owns a put struck at 35. At expiration the share is 40. What is the put payoff?

6.Farah paid a premium of 2 for a put struck at 35. At expiration the share is 30. What is her profit per share?

7.Gideon bought a share at 40 and a put struck at 38 for a premium of 1. At expiration the share is 20. What is the expiration value of the share plus the put payoff?

8.Hana owns a share and sold a call struck at 45 for a premium of 2. At expiration the share is 60. What is the expiration value of the share minus the call payoff she owes?

9.Ivan sees a share at 110. The present value of the strike is 100, so call minus put equals 10. The call is priced at 12. What put price matches parity?

10.Jules uses a parity gap of 10. The put is 2, so a parity call is 12, but the call trades at 15. Which contract is rich?

11.Kenan will harvest wheat in three months and wants futures that gain if the crop price falls. What does he do?

12.Lila will buy wheat for her bakery in three months. She wants futures that gain if wheat rises before she buys. What does she do?

13.Mateo is short wheat futures against a crop he will sell. Basis, defined as spot minus futures, starts at -5 with spot 100 and futures 105. At the close, spot is 90 and futures are 92, so basis is -2. What is the net result on the hedged position?

14.Nadia quotes wheat with a spot of 100 and a futures price of 105. In this question, contango means the futures price is above the spot. Which curve is this?

15.Omar uses one rule: contango means futures above spot, and backwardation means futures below spot. Spot is 100 and futures are 96. Which curve is this?

16.Petra pays fixed and receives floating on a plain vanilla interest-rate swap. The floating rate resets higher. What is her result?

17.Quinn pays floating and receives fixed. The floating rate he pays resets lower. What is his result on the swap?

18.Rosa pays fixed at 4% and receives floating. This period the floating rate is 6%, the notional is 1,000,000, and the confirmation says they exchange only the net. What does she receive?

19.Soren can buy one payoff for 0.20 less than the same payoff in another market. Round-trip costs are 0.35. What should he do?

20.Talia can be long a forward or long an option. She wants a position she may drop when the payoff would be negative. Which description fits the two contracts?

21.Uri is long a forward at 50. Nothing is marked to market. At expiration the spot is 58. What is his gain per unit?

22.Vera is short a forward at 50. Spot at expiration is 58, and nothing was marked to market along the way. What is her result per unit?

23.Wesley is long a futures contract. During the day the futures price moves from 50 to 53. What happens to his margin account that day?

24.Ximena's futures position has initial margin of 10 and maintenance margin of 7. The exchange rule is that a margin call restores initial margin. The position loses 4. How much extra cash must she post?

25.Yusuf hedges with futures. The contract locks limit-up, and his stop order does not fill. What is true that day?

26.Zara will buy jet fuel and hedges with heating-oil futures. The heating-oil future is priced fairly. What can still go wrong?

27.Aaron must offset an exposure of 2,000,000. Each futures contract covers 100,000 of that exposure. How many contracts does he sell?

28.Bridget's naive hedge would sell 20 contracts. A regression of her exposure on the futures has a slope of 0.8. How many contracts does the regression hedge use?

29.Cassian cuts a 20-contract hedge to 16 because the slope is 0.8 and he treats that slope as the true link. What does selling 16 mean?

30.Delia runs a US firm that will receive euros in six months. She sells the euros forward and locks the dollar proceeds. The euro later rises. What does the lock cost her?

31.Emile's US firm must pay a euro invoice in six months. He buys euros forward. What move is he guarding against?

32.Fiona compares a fiduciary call, a call plus cash equal to the present value of the strike, with a protective put, the share plus a put. The fiduciary call is cheaper and the payoffs match. What does she do?

33.Graham owns an American call on a stock that pays no dividend. A European call has the same strike and the same expiration. What is true of early exercise?

34.Helena holds an American call and a European call on a stock about to pay a large dividend. Just before the stock goes ex-dividend, what can be true?

35.Idris holds a deep in-the-money American put and a European put with the same strike. The share is far below the strike. What can be true?

36.Joelle reprices a call and raises only the strike. What happens to the call value?

37.Khalid reprices a put and raises only the strike. What happens to the put value?

38.Leona holds an American call and an American put. She lengthens both and changes nothing else. What happens to the two values?

39.Malik raises volatility in the price of a call and the price of a put. The share, strike, time, and rates stay fixed. What happens?

40.Nora raises the interest rate in the standard model and holds the share price and the other inputs fixed. What happens to a call and a put?

41.Oscar raises the continuous dividend yield and changes nothing else. What happens to a call and a put on that share?

42.Paloma's call premium is 7. The share is 40 and the strike is 35. What is the time value?

43.Rafael holds a call with a premium of 1.5. The share is 32 and the strike is 35. What is the time value?

44.Selene owns a call with a delta of 0.40. The share rises by 1, a small move. What does that delta say?

45.Theo has written a call. The share rises. What is true of his delta?

46.Uma is long a put. Which description of put delta fits her position?

47.Victor delta-hedges a long at-the-money option close to expiration. Gamma is the change in delta. What should he expect?

48.Willa delta-hedges a deep in-the-money call. How does that hedge compare with an at-the-money hedge near expiration?

49.Xavier is short a straddle. Implied volatility rises, and the share price, the strike, and time do not change. What happens to his position?

50.Yasmin bought an option. One day passes, and the share, volatility, and rates are unchanged. What does theta typically do to her?

51.Anders buys a call and a put at the same strike. The share stays near that strike, and both premiums were expensive. What is the position, and what is the result?

52.Bree buys a straddle struck at 50. The call premium is 4 and the put premium is 3. At expiration the share is 50. What is her profit?

53.Cedric holds a straddle that cost 7 and is struck at 50. At expiration the share is 62. What is his profit?

54.Daphne holds a straddle that cost 7 and is struck at 50. What is the upper breakeven at expiration?

55.Eitan holds a share, a long put struck at 45, and a short call struck at 55. At expiration the share is 70. Before any net premium, what sale value do the share and the options deliver?

56.Freya holds a share, a long put struck at 45, and a short call struck at 55. Net premium is zero. At expiration the share is 30. What is the expiration value of the share plus the option package?

57.Gita buys a 40 call and sells a 50 call. She pays a net premium of 3. At expiration the share is 60. What is her profit?

58.Hugo bought a 40 call and sold a 50 call, paying a net premium of 3. At expiration the share is 35. What is his result?

59.Ingrid buys a 50 put and sells a 40 put. She pays a net premium of 4. At expiration the share is 30. What is her profit?

60.Jonah sells a near-dated call and buys a longer-dated call at the same strike. Before the near expiration, what does the seller of the near call want?

61.Kira sets a plain interest-rate swap, whose notional is not exchanged, beside a currency swap. Which swap exchanges principal at the end?

62.Lars has dollar revenues and a euro loan to service. He uses a currency swap to turn that euro debt service into dollars. What does his side of the swap do?

63.Mina's forward has positive replacement value, so it is an asset on her books. Who has the credit exposure?

64.Nico holds an exchange-traded future and wants to know who stands between him and the original counterparty. Who is it, and what enforces performance?

65.Odette deals a bilateral swap. The mark-to-market is large, the agreement calls for collateral, and she skips it. What is she doing?

66.Paolo sold futures against 100 units of crop and then harvested 80. What are the extra 20 futures?

67.Quilla bought wheat futures covering 100 units she expected to purchase. She now needs only 70. What are the extra 30 futures?

68.Rohan is long futures he will roll. Here, contango means the futures price is above the spot, and the deferred contract he must buy is priced above the near one. What is that roll for him?

69.Sable is a long hedger rolling futures. Backwardation here means the futures price is below the spot. The near contract is 100 and the deferred is 96. She closes the near and buys the deferred. What does she pay for the new long?

70.Tomas is a short hedger. Contango here means the futures price is above the spot, and the deferred contract is above the near one. The near is 100 and the deferred is 105. He buys back the near and sells the deferred. What price does he sell at?

71.Ursula holds a call on a futures contract. The futures price is 80 and the strike is 75. What is the exercise value?

72.Vijay holds a call on a futures contract. Spot is above the strike, but the futures price is below the strike. He wants to exercise because of the spot. What is he looking at?

73.Wanda will issue a floating-rate note later. She wants the right, not the duty, to lock a fixed rate by paying fixed on a swap. What does she buy?

74.Xavi will buy a floating-rate note. He wants the right to swap those floating receipts into fixed receipts. What does he buy?

75.Yara borrows at a floating rate and owns a cap struck at 5%. On this reset the reference rate is 7%. What does the cap pay for the period, as a percent of notional?

76.Zeke owns a floating-rate note and a floor struck at 3%. The reset prints at 1%. What does the floor pay for the period?

77.Amina borrows at a floating rate. She buys a cap and sells a floor, and the floor premium offsets the cap premium. What does she give up?

78.Boris sets the cap premium equal to the floor premium and calls the collar zero-cost. Which statement is still true?

79.Celeste is long a forward rate agreement. The long benefits when the reference rate is above the contract rate. Notional is 1,000,000, the contract rate is 5%, the reference rate is 6%, and the period is a quarter year. Settlement discounts the interest difference because it is paid at the start. What does she receive?

80.Dario is long a forward rate agreement with notional 1,000,000, contract rate 5%, and a period of 0.25 year. The long benefits only when the reference rate is above the contract rate. The reference rate prints at 4%. What does he do?

81.Esme prices a one-year forward on a share at 100 that pays no dividend. The interest rate is 5%. What is the ordinary forward price, as distinct from the prepaid forward of 100?

82.Felix prices a one-year forward on a share at 100. A cash dividend of 2 is paid in six months. The annual rate is 5%, and 1.05 raised to 0.5 is about 1.0247. What is the forward price?

83.Greta stores wheat she will use in the mill. A clerk books convenience yield as a cash dividend the exchange pays. How should she treat convenience yield when she prices the forward?

84.Hasan stores a commodity worth 100. Insurance and storage cost 3 for the year, the interest rate is 0, and pure carry with no convenience yield is about 103. The quoted forward is 100. What does a forward below that carry price imply?

85.Imani can store the commodity. After storage and financing, the futures price sits above the carry price. What is the cash-and-carry trade?

86.Jalen sees a future priced cheap to carry. He cannot short the commodity and he cannot borrow it. What follows for the reverse trade?

87.Keiko posts margin on a long future. A colleague books it as a down payment that gives her the commodity, or as a loan of the full notional. What is the margin?

88.Leon's futures hedge is locked at the daily price limit, and he cannot adjust it. He tells the board the future is complete protection that day. What is wrong with the report?

89.Maren compares two hedges. An oil producer sells oil forward to a bank. Separately, a firm buys credit protection on a bank from that same bank. Which hedge has wrong-way risk?

90.Nabil holds an equity forward. The counterparty posts government bonds unrelated to that equity. What is true of the collateral?

91.Opal has three trades with one counterparty under a single netting agreement. The values are +10, +4, and -9. What is her credit exposure?

92.Piet has the same three trades, valued at +10, +4, and -9, but setoff is not enforceable. What is his exposure with no netting?

93.Rhea buys a put that knocks out if the share falls through 30. She wants that put most if the share is already in trouble. What is the flaw?

94.Samir needs protection from the first dollar a share falls. A dealer offers a knock-in put that comes alive only after a 20% drop. What should he buy for protection before that barrier?

95.Tessa must hedge one invoice set off the share on a single year-end date. An Asian option pays from the year's average price. A European option pays from the price on that date. Which matches the invoice?

96.Ulrich holds a binary that pays a fixed 5 if it finishes in the money. At expiration the share is 80 and the strike is 50. What does the binary pay?

97.Vivek's firm may or may not win a contract. He wants the right to decide later whether to pay for a hedge, rather than buying the hedge now. What does he buy?

98.Winnie set the hedge ratio from last year's quiet daily prices and never looked at a stress window where the link broke. What should the risk report include?

99.Xiao is told the book's 1-day 5% value at risk is 2 million. Under the model's assumptions, what does that figure mean?

100.Yvette's board sees only value at risk. She wants the average loss on days when the loss is already past that threshold. Which measure answers her?

101.Zane delta-hedges a call he has written by buying delta shares. Implied volatility jumps, and the share gaps through the hedge. What is true?

102.Adele rebalances a delta hedge of a short call. She buys shares as the price rises and sells shares as it falls. What is that pattern?

103.Bjorn is long an option and is delta-hedged. Realized movement is smaller than the volatility priced in the premium. What happens to that hedged long option?

104.Cora hedges with an index future that settles in cash. She expected the future to deliver the basket of shares. What does settlement actually give her?

105.Denis bought a Treasury future because he needs one particular bond. Delivery uses a basket of eligible bonds. Who chooses the bond that is delivered?

106.Elsie set a Treasury futures hedge ratio on today's cheapest-to-deliver bond. Yields then move sharply. What can happen?

107.Farid must buy grain in March, June, and September. He can stack the whole hedge in March and roll, or place a strip in the March, June, and September contracts. What does the strip spare him that the stack takes on?

108.Giselle mines metal. A loan covenant breaks if the price falls below her cost on the volume the lender underwrote. She also has optional extra output, and the balance sheet is strong. What does the covenant require her to hedge?