In hedging transactions, derivatives typically have the following advantages over cash instruments:
I. Lower credit risk
II. Lower funding requirements
III. Lower dealing costs
IV. Lower capital charges

• A.I, II
• B.I, III
• C.II, IV
• D.I, II, III, IV

Comment: *

Name: *

Email: *

Verification: *

A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian
dollars and sell Brazilian reals. Alpha bank does not hold reals so it asks for a quote to buy Brazilian reals in
the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer and sells the reals at
this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange
matched transaction. What is the financial impact of this transaction for Alpha bank?

• A.This transaction leaves the bank a profit of AUD 10,101.
• B.This transaction leaves the bank a profit of BRL 10,101.
• C.This transaction leaves the bank a loss of BRL 10,101.
• D.This transaction leaves the bank a loss of AUD 10,101.

Comment: *

Name: *

Email: *

Verification: *

An options trader for a large institutional investor takes a long equity option position. Which of the following
risks need to be considered when taking this position?
I. All the risks of underlying equities
II. Perceived volatility changes
III. Future dividends yields
IV. Risk-free interest rates

• A.II, III
• B.I, II
• C.I, II, III, IV
• D.III, IV

Comment: *

Name: *

Email: *

Verification: *

A portfolio manager is interested in computing risk measures for his bond investment portfolio. Which of the
following measures the sensitivity of duration to interest rates?

• A.Yield curve
• B.Credit spread.
• C.Convexity.
• D.Modified duration.

Comment: *

Name: *

Email: *

Verification: *

What do option deltas measure?

• A.The rate of change of the option value with respect to changes in the price of the underlying instrument.
• B.The sensitivity of the option value to the passage of time.
• C.The rate of change of the option value with respect to changes in volatility of the underlying instrument.
• D.The sensitivity of the option value to changes risk free interest rate.

Comment: *

Name: *

Email: *

Verification: *