A hedge fund trader buys options to establish an exposure in the currency market, thereby effectively
removing the risk of being able to participate in a gapping market. In this case the options premium represents
the price paid for eliminating the execution risk of

• A.The theta-hedging strategy.
• B.The vega-hedging strategy.
• C.The gamma-hedging strategy.
• D.The delta-hedging strategy.

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Changes to which one of the following four factors would typically not increase the cost of credit?

• A.Higher risk premium on a fixed income instrument.
• B.Higher return earned on alternative investments.
• C.Increase in consumption of goods and services.
• D.Increasing inflation rates in a country.

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Normally, commercial banking can be viewed as a fixed income carry trade since

• A.Short-term fixed rate deposits are used to fund long-term floating rate loans.
• B.Short-term floating-rate deposits are used to fund short-term floating rate loans.
• C.Short-term floating-rate deposits are used to fund long-term fixed rate loans.
• D.Short-term fixed-rate deposits are used to fund short-term floating rate loans.

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For two variables, which of the following is equal to the average product of the deviations from their
respective means?

• A.Standard deviation
• B.Kurtosis
• C.Correlation
• D.Covariance

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The Treasury function of a bank typically manages all of the following components EXCEPT:

• A.Bank's liquidity
• B.Bank's assets and liabilities
• C.Bank's capital
• D.Bank's performance estimates

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