A firm with a variable-rate loan wants to protect itself from increases in interest rates.

An option contract: I. can be used to hedge risk. II. can be used to speculate in the market. III. can be based on a futures contract to create a futures option. IV. cannot be based on a foreign currency.    A.  II and III only B.  I and II only C.  I, II, and III only D.  II, III, and IV only E.  I, II, III, and IV Refer to section 23.6

39.

Which two of the following are key differences between an option contract and a forward contract? I. option contracts can be resold but forward contracts cannot II. the option price is determined at settlement while the forward price is determined when the contract is initiated III. the rights and obligations of the buyer IV. cost when contract initiated    A.  I and III only B.  II and IV only C.  III and IV only D.  I and II only E.  II and III only Refer to sections 23.3 and 23.6

40.

A firm with a variable-rate loan wants to protect itself from increases in interest rates. Which of the following would interest this firm? I. interest rate floor II. interest rate cap III. put option on an interest rate IV. call option on an interest rate    A.  I only B.  I and III only C.  I and IV only D.  II and III only E.  II and IV only Refer to section 23.6

41.

If a firm creates an interest rate collar on a variable rate loan, then the rate the firm pays will always:    A.  remain constant at the average of the floor and cap rates. B.  remain constant at the floor rate. C.  remain constant at the cap rate. D.  be higher than, or equal to, the cap but lower than, or equal to, the floor. E.  be higher than, or equal to, the floor but lower than, or equal to, the cap. Refer to section 23.6

42.

Which one of the following actions will provide you with the right, but not the obligation, to sell the underlying asset at a specified price during a specified period of time?    A.  purchase of a call option B.  sale of a call option C.  purchase of a put option D.  sale of a put option E.  swap Refer to section 23.6