Define the following terms
Eurodollars
Federal funds rate
Underwriting spread
Real rate of interest
General obligation bond

Explain why the fixed-rate payer in an interest rate swap is happy when interest rates go up.

Evaluate the following statement: “Hedging through the use of an options contract is superior to hedging through the use of a futures contract.”

Why might a general belief that aviation fuel prices would rise make it more difficult for US AIRWAYS to hedge against rising fuel costs using option contracts? Explain.

Evaluate the following statement: “The greater the difference in real interest rates between the United States and the United Kingdom, the smaller the difference between the spot and futures prices of a dollar in pounds.”

Explain how the actions of arbitrageurs will make the exchange rates among three currencies consistent.

Evaluate the following statement: “The weaker the preferred habitats of participants in financial markets the stronger the explanatory power of the pure expectations approach to explaining the shape of the yield curve.”

Evaluate the following statement: “The yield curve will be upward sloping if people expect short term interest rates to rise.”

Evaluate the following statement. “The most useful way to assess the riskiness of a financial asset is by looking at the variance of the return on the asset.”

Evaluate the following statement. “Investors demand compensation for non-systematic risk but not for systematic risk.”

What factors tend to increase bid-asked spreads? Explain.

Why does over-the-counter stock have wider bid-asked spreads than do US Treasury bills?