Series 3: Chapter 3 Practice Questions

Taken from our Series 3

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

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