Series 3: Chapter 3 Practice Questions

Chapter 3 Practice Questions

1. 1. On a particular day, the exchange rate of the U.S. dollar and the Albanian lek (L) is 125 L/USD. What is the exchange rate quoted in American terms?
2. A. 0.0080 USD/L
3. B. 0.0375 L/USD
4. C. 0.0125 USD/L
5. D. It is already quoted in American terms
6. 2. All foreign exchange futures contracts are quoted in:
7. A. American terms
8. B. European terms
9. C. The same terms in which the foreign currency is quoted in the spot market
10. D. American and European terms side by side
11. 3. All of the following are true of systematic risk, except that systematic risk:
12. A. Is estimated for a particular stock by the stock’s beta
13. B. Is the risk that two correlated stocks will rise or fall in price at the same rate
14. C. Is the risk that the market as a whole will decline
15. D. Cannot be reduced by diversifying a portfolio
16. 4. Diversifying a stock portfolio reduces:
17. I. Systematic risk
18. II. Unsystematic risk
19. A. I only
20. B. II only
21. C. Both I and II
22. D. Neither I nor II
23. 5. You want to hedge your portfolio of stocks whose risks you measure against the market, defined for your purposes as the Russell 1000 stock index. What should be the beta of the Russell 1000?
24. A. 1.0
25. B. 0.5
26. C. -0.5
27. D. -1.0
28. 6. The term “risk-free return” refers to the return on an investment _____.
29. A. Already realized
30. B. Associated with systematic risk
31. C. Expected on a Treasury bill
32. D. Associated with cost of carry, such as dividends or earned interest
33. 7. The capital asset pricing model evaluates a stock index’s _____ in terms of _____.
34. A. Contract multiplier; contract size
35. B. Beta; tick size
36. C. Cost of carry; dividends
37. D. Expected return; risk
38. 8. What is the contract size for single stock futures?
39. A. 20 shares
40. B. The stock’s current value times a contract multiplier
41. C. 100 shares
42. D. 1,000 shares
43. 9. A spread consisting of long and short futures con