SOLVED

7) What is an option? A) A contract that gives the holder the right to sell an instrument at a pre-specified price. B) A contract that is derived from some other underlying quantity, index, asset or event. C) A contract that gives the holder the right to acquire an instrument at a pre-specified price. D) A contract that gives the holder the right to buy or sell something at a specified price. 8) What is a “call” option? A) A contract that gives the holder the right to sell an instrument at a pre-specified price. B) A contract that is derived from some other underlying quantity, index, asset or event. C) A contract that gives the holder the right to acquire an instrument at a pre-specified price. D) A contract that gives the holder the right to buy or sell something at a specified price. 9) Which of the following is correct regarding a call option? A) The intrinsic value of a call option is the greater of zero and (K- S), the difference between the market price and the strike price. B) The time value of an option reflects the probability that the future market price of the underlying instrument will not exceed the strike price. C) The time value decreases with the length of time to expiration and the volatility of the underlying instrument (such as the share price). D) The time value is always positive until the option expires, so the total value of an unexpired option is always greater than the intrinsic value. 10) What is a “put” option? A) A contract that gives the holder the right to sell an instrument at a pre-specified price. B) A contract that is derived from some other underlying quantity, index, asset or event. C) A contract that gives the holder the right to acquire an instrument at a pre-specified price. D) A contract that gives the holder the right to buy or sell something at a specified price. 11) What is a “swap”? A) A contract in which two parties agree to exchange cash flows (e.g. interest cash flows). B) A contract in which one party commits upfront to buy or sell commonly traded items at a defined price and maturity date. C) A contract in which one party commits upfront to buy or sell something at a defined price at a defined future date. D) A contact that gives the right, but not the obligation, to buy a share at a specified price over a specified period of time. 12) Which of the following is an example of a “swap”? A) Right to buy 100 shares of CIBC over the next 5 years. B) Commitment to buy 100 barrels of oil next month at $125/barrel. C) Commitment to buy $100,000 US dollars in 4 months at US$=1.10. D) Pay interest at prime +3% in exchange for receiving interest at 5%. 13) What is a “future”? A) A contract in which two parties agree to exchange cash flows (e.g. interest cash flows). B) A contract in which one party commits upfront to buy or sell commonly traded items at a defined price and maturity date. C) A contract in which one party commits upfront to buy or sell something at a defined price at a defined future date. D) A contact that gives the right, but not the obligation, to buy a share at a specified price over a specified period of time. 14) Which of the following is an example of a “future”? A) Right to buy 100 shares of CIBC over the next 5 years. B) Commitment to buy 100 barrels of oil next month at $125/barrel. C) Commitment to buy $100,000 US dollars in 120 days at US$=1.10. D) Pay interest at prime +3% in exchange for receiving interest at 5%. 15) What is a “forward”? A) A contract in which two parties agree to exchange cash flows (e.g. interest cash flows). B) A contract in which one party commits upfront to buy or sell commonly traded items at a defined price and maturity date. C) A contract in which one party commits upfront to buy or sell something at a defined price at a defined future date. D) A contact that gives the right, but not the obligation, to buy a share at a specified price over a specified period of time. 16) Which of the following is an example of a “forward”? A) Right to buy 100 shares of CIBC over the next 5 years. B) Commitment to buy 100 barrels of oil next month at $125/barrel. C) Commitment to buy $100,000 US dollars in 120 days at US$=1.10. D) Pay interest at prime +3% in exchange for receiving interest at 5%.