QUESTION: 145 Exam Topic: 2 Volume B

Which one of the following four statements represents a possible disadvantage of using total return swap to manage equity portfolio risks?

Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of the trading position.
The total return receiver needs to incur the transaction costs of establishing an equity position.
Similar to an equity forward position, the total return receiver does not get paid the dividend.
The total return receiver does not have any voting rights.

Answer(s): D

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QUESTION: 146 Exam Topic: 2 Volume B

To hedge equity exposure without buying or selling shares of stock or otherwise rebalancing the portfolio, a risk manager could initiate

A short total return swap position.
A long total return swap position.
A short debt-for-equity swap.
A long debt-for-equity swap.

Answer(s): A

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QUESTION: 147 Exam Topic: 2 Volume B

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