Practice Test Geeks(CFM) Certified Fund Manager Practice Test
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Derivatives & Hedging Strategies Flashcards

7 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. An equity fund manager sells index futures equal to the portfolio's beta-adjusted value to temporarily reduce market exposure. This technique is called:

    Answer: Tactical asset allocation using derivatives

    Using index futures to adjust a portfolio's market exposure without trading the underlying securities is a common tactical asset allocation technique.

  2. Put-call parity for European options states that:

    Answer: C - P = S - PV(K)

    Put-call parity: C - P = S - PV(K), meaning a long call minus a long put equals the current stock price minus the present value of the strike.

  3. When hedging a foreign currency receivable due in 90 days using forward contracts, the fund manager should:

    Answer: Sell the foreign currency forward

    Selling the foreign currency forward locks in the exchange rate for converting the future receivable back to domestic currency.

  4. Which of the following best describes theta in options pricing?

    Answer: The rate at which an option loses value due to the passage of time

    Theta measures time decay — the amount by which an option's value decreases as each day passes, all else equal.

  5. A fund manager enters a commodity swap paying fixed and receiving floating oil prices to hedge fuel costs. If oil prices rise significantly, the fund manager's swap position will:

    Answer: Generate a gain as floating receipts exceed fixed payments

    When oil prices rise, the floating receipts increase above the fixed payments, generating a gain on the swap that offsets higher fuel costs.

  6. The 'Greeks' of a short straddle position (short call + short put at same strike) include:

    Answer: Near-zero delta, negative gamma, negative vega

    A short straddle has near-zero net delta (calls offset puts), negative gamma (loses from large moves), negative vega (loses from rising vol), and positive theta (gains from time decay).

  7. A fund manager uses a futures overlay to increase a bond portfolio's duration from 4 years to 7 years. If the portfolio is $100 million and the futures DV01 is $1,200, approximately how many contracts must be bought?

    Answer: 250 contracts

    Duration increase = 3 years on $100M = $300,000 DV01 target change; $300,000 / $1,200 per contract ≈ 250 contracts.