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ch23

ch23

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Published by Madiyar Mambetov

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Published by: Madiyar Mambetov on Nov 28, 2012
Copyright:Attribution Non-commercial

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01/15/2014

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ch23Key
1. Federal regulations in the U.S. allow derivatives to be used only by the 25 largestbanks.
FALSE
 
Saunders - Chapter 23 #1
2. Derivative contracts allow an FI to manage interest rate and foreign exchange risk.
TRUE
 
Saunders - Chapter 23 #2
3. The replacement cost of the derivative contracts for the top 25 derivative users wasgreater than the credit exposure as of September 2006.
FALSE
 
Saunders - Chapter 23 #3
4. The Financial Accounting Standards Board requires that all derivatives be marked-to- market with any losses and gains transparent on FI's financial statements.
TRUE
 
Saunders - Chapter 23 #4
5. A spot contract specifies deferred delivery and payment.
FALSE
 
Saunders - Chapter 23 #5
6. A forward contract specifies immediate delivery for immediate payment.
FALSE
 
Saunders - Chapter 23 #6
7. In a forward contract agreement, the quantity of product to be traded, the time of the actual trade and the price are determined at the time of the agreement.
TRUE
 
Saunders - Chapter 23 #7
8. A perfect hedge or perfect immunization, seldom occurs.
TRUE
 
Saunders - Chapter 23 #8
 
9. Immunizing the balance sheet against interest rate risk means that gains (losses)from an off-balance-sheet hedge will exactly offset losses (gains) from the balancesheet position.
TRUE
 
Saunders - Chapter 23 #9
10. An FI with a positive duration gap is exposed to interest rate declines and couldhedge its interest rate risk by buying forward contracts.
FALSE
 
Saunders - Chapter 23 #10
11. An FI with a negative duration gap is exposed to interest rate declines and couldhedge its interest rate risk by buying forward contracts.
TRUE
 
Saunders - Chapter 23 #11
12. An off-balance-sheet forward position is used to hedge the FI's on-balance-sheetrisk exposure.
TRUE
 
Saunders - Chapter 23 #12
13. Microhedging uses futures or forward contracts to hedge the entire balance sheetduration gap.
FALSE
 
Saunders - Chapter 23 #13
14. Macrohedging uses a derivative contract, such as a futures or forward contract, tohedge a particular asset or liability risk.
FALSE
 
Saunders - Chapter 23 #14
15. Routine hedging will allow the FI to achieve the return from the assets andliabilities on the balance sheet.
FALSE
 
Saunders - Chapter 23 #15
16. Selective hedging occurs by reducing the interest rate risk by selling sufficientfutures contracts to offset the interest rate risk exposure of a portion of the cashpositions on the balance sheet.
TRUE
 
Saunders - Chapter 23 #16
17. Hedging selectively only a portion of the balance sheet is an attempt to increasethe return of the FI by accepting some level of interest rate risk.
TRUE
 
Saunders - Chapter 23 #17
 
18. The sensitivity of the price of a futures contract depends on the duration of thedeliverable asset underlying the contract.
TRUE
 
Saunders - Chapter 23 #18
19. All bonds that are deliverable under a Treasury bond futures contract have amaturity of 20 years and an interest rate of 8 percent.
FALSE
 
Saunders - Chapter 23 #19
20. Hedging a specific on-balance-sheet cash position usually will only require more T-bill futures contracts than hedging the same cash position with T-bond futurescontracts because the t-bond contract size is only 10 percent as large as large as the T-bill contract.
FALSE
 
Saunders - Chapter 23 #20
21. A conversion factor often is to figure the invoice price on a futures contract whena bond other than the benchmark bond is delivered to the buyer.
TRUE
 
Saunders - Chapter 23 #21
22. Basis risk occurs when the underlying security in the futures contract is not thesame asset as the cash asset on the balance sheet.
TRUE
 
Saunders - Chapter 23 #22
23. An adjustment for basis risk with a value of "br" less than one means that thepercent change in the spot rates is greater than the change in rate in the deliverablebond in the futures market.
TRUE
 
Saunders - Chapter 23 #23
24. Hedging foreign exchange risk in the futures market may involve uncertaintyabout all of the transactions necessary to achieve the hedge to fulfillment.
TRUE
 
Saunders - Chapter 23 #24
25. Tailing-the-hedge normally requires an FI manager to utilize more futurescontracts to hedge a cash position than are warranted by the initial analysis.
FALSE
 
Saunders - Chapter 23 #25
26. The hedge ratio measures the impact that tailing-the-hedge will have on thenumber of contracts necessary to hedge the cash position.
FALSE
 
Saunders - Chapter 23 #26

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