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(FINA222)[2010](s)midterm~2047^_10335.pdf
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FINA222 Midterm
Name:


Student ID:


This is a closed-book, closed notes examination. The only material you are allowed to bring is one page notes with whatever you wrote on it.

First, print your name in the space provided above. Then quickly review the exam and make sure you have all the pages. Start by answering the questions you think you can easily handle, then move to the more complex questions.

Show your work. If you have the wrong answer, but your work indicates elements of understanding, you may receive partial credit. Write your answers neatly. If I cant read what you wrote, I cant give you credit!

Good Luck!



















I. Multiple Choice Questions: (36)

1.
Four portfolios have following cash flows patterns. Which portfolio provides arbitrage opportunity?




Portfolio
t = 0
t = T

A
Receive $10
Pay 0

B
Receive $10
Pay 11

C
Pay 0
Receive $10

D
Pay $10
Receive $11




a.
A


b.
C


c.
B and C


d.
A and C Answer ( d )




2.
Which of the following parties may have the obligation to sell the underlying security at the predetermined price:


a.
The party who short a forward, and the party who short an European option


b.
The party who short a forward, and the party who short a call.


c.
The party who long a forward, and the party who short a call


d.
The party who short a forward, and the party who short a put

Answer ( b )



3.
You enter into a Forward Rate Agreement (FRA) to receive fixed amount of interest on an investment of $100million, for the time period from 6-month from today to 12 month from today, the FRA can be decomposed into:


a.
A long 6-month T bill and a short 12-month T bill


b.
A short 6-month T bill and a long 12-month T bill


c.
A long 6-month T bill and long 12-month T bill


d.
A long 12 month bond with 6 month semi-annual coupons.


Answer ( b )




4.
If the interest rate is positively related to the underlying spot price, and theres no dividend, convenient yield or storage cost, what is the relationship between forward price (F) and futures price (f)


a.
F > f


b.
F < f


c.
f = F


d.
unknown

Answer ( b )






5.
Interest rates on the U.S. dollar are 5.4% and euro rates are 4.6%, semiannual compounding. Given dollar per euro spot rate of 0.918, what is the 6-month forward rate in USD for one euro?

(a) 0.912
(b) 0.917
(c) 0.922
(d) 0.934
Answer ( c )



6.
Which of the following is true

(a) Both forward and futures contracts are traded on exchanges.
(b) Forward contracts are traded on