Question 1

By market convention, which of the following currencies are not quoted in terms of 'direct quotes' versus the USD?

Options :

A : EUR

B : EUR

C : KWD

Answer: A

Question 2

The price of an interest rate cap is determined by:

I. The period to which the cap relates

II. Volatility of the underlying interest rate

III. The exercise or the strike rate

IV. The risk free rate

Options :

A :

I, II, III and IV

B : I, II and III

C : II, III and IV

D : I, II and IV

Answer: B

Question 3

An early exercise of an American call option is advisable whenever the option is deep in the money and delta approaches 1

Options :

A : An early exercise of an American call option is advisable whenever the option is deep in the money and delta approaches 1

B : An early exercise of an American call option may be justified if an extraordinarily large dividend payment is imminent

C : An early exercise of an American call option is never a good idea as an option is always worth more alive than when it is dead

D : An early exercise of an American option, if ever to be done, should be done immediately after an exdividend date

Answer: B

Question 4

Which of the following is not a money market security

Options :

A : Treasury notes

B : Treasury bills

C : Bankers' acceptances

D : Commercial paper

Answer: A

Question 5

Which of the following portfolios would require rebalancing for delta hedging at a greater frequency in order to maintain delta neutrality?

Options :

A : A portfolio with a low delta and high vega

B : A portfolio with a high gamma

C : A portfolio with a high delta and low gamma

D : A portfolio with a low gamma

Answer: B

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