Questions from Financial Markets

Q: Describe the Flash Crash on May 6, 2010 and explain why

Describe the Flash Crash on May 6, 2010 and explain why it caused so much concern to investors and regulators.

Q: Explain how some high frequency traders used a form of front running

Explain how some high frequency traders used a form of front running to capitalize on faster access to specific markets.

Q: Assume a savings institution has a large number of fixed-rate

Assume a savings institution has a large number of fixed-rate mortgages and obtains most of its funds from short-term deposits. How could it use options on financial futures to hedge its exposure to i...

Q: Explain how and why high frequency trading affects spreads.

Explain how and why high frequency trading affects spreads.

Q: Three savings and loan institutions (S&Ls) have identical

Three savings and loan institutions (S&Ls) have identical balance sheet compositions: a high concentration of short-term deposits that are used to provide long-term, fixed-rate mortgages. The S&am...

Q: The price of Garner stock is $40. There is also

The price of Garner stock is $40. There is also a call option on Garner stock that is at the money, with a premium of $2.00. There is a put option on Garner stock that is at the money, with a premium...

Q: How would you interpret a large increase in the CBOE volatility index

How would you interpret a large increase in the CBOE volatility index (VIX)? Explain why the VIX increased substantially during the credit crisis that began in 2008.

Q: Rider Company negotiates a forward swap to begin two years from now

Rider Company negotiates a forward swap to begin two years from now, in which it will swap fixed payments for floating-rate payments. What will be the effect on Rider if interest rates rise substantia...

Q: Credit default swaps were once viewed as a great innovation could make

Credit default swaps were once viewed as a great innovation could make mortgage markets more stable. However, the swaps were sometimes criticized for making the credit crisis worse. Why?

Q: Explain why the failures of Lehman Brothers caused prices on credit default

Explain why the failures of Lehman Brothers caused prices on credit default swap contracts to increase.