Which of the following describes tailing the hedge? ( )
A strategy where the hedge position is increased at the end of the life of the hedge
B. A strategy where the hedge position is increased at the end of the life of the futures contract
C. A more exact calculation of the hedge ratio when forward contracts are used for hedging
D. None of the above
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A short forward contract that was negotiated some time ago will expire in three months and has a delivery price of $40. The current forward price for three-month forward contract is $42. The three month risk-free interest rate (with continuous compounding) is 8%. What is the value of the short forward contract? ( )
A. +$2.00
B. −$2.00
C. +$1.96
D. −$1.96
The spot price of an asset is positively correlated with the market. Which of the following would you expect to be true? ( )
A. The forward price equals the expected future spot price.
B. The forward price is greater than the expected future spot price.
C. The forward price is less than the expected future spot price.
D. The forward price is sometimes greater and sometimes less than the expected future spot price.
Which of the following describes the way the futures price of a foreign currency is quoted by the CME group? ( )
A. The number of
B. The number of the foreign currency per
C. Some futures prices are always quoted as the number of
D. There are no quotation conventions for futures prices
E. S. dollars per unit of the foreign currency
F. S. dollar
G. S. dollars per unit of the foreign currency and some are always quoted the other way round
A company invests $1,000 in a five-year zero-coupon bond and $4,000 in a ten-year zero-coupon bond. What is the duration of the portfolio? ( )
A. 6 years
B. 7 years
C. 8 years
D. 9 years
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