Exam of Beloy (1st) Flashcards
Options, forwards, swaps, and futures are financial assets.
False
The absence of a daily settlement is one of the factors distinguishing a forward contract from a futures contract.
True
A risk premium is the additional return investors expect for assuming risk.
True
Arbitrage is a transaction designed to capture profits resulting from market efficiency.
False
The law of one price states that the price of an asset cannot change.
False
Most derivative contracts terminate with delivery of the underlying asset.
False
Swaps, like options, trade on organized exchanges.
True
The theoretical fair value is the only value an asset can have.
False
Uncertainty of future sales and cost of inputs are examples of financial risks businesses may face.
False
A call option on a futures contract gives the buyer the right to buy a futures contract.
True
A seller of a put option on a futures contract obligates them to buy a futures contract should the put buyer exercise the option.
True
Derivatives permit invertors to manage their risk more efficiently.
True
Lower transaction costs are one advantage of derivative markets.
True
Derivative markets make stock and bond markets more efficient.
True
Speculation is equivalent to gambling.
False
Storing an asset entails risk.
True
Exchange¬-traded derivatives volume is less than one billion according to the Futures Industry magazine in 2010.
False
Derivatives are securities and not contracts.
False
Short selling is a high-risk activity.
True
Swap obligate delivery of either bonds or stocks.
False
The market value of the derivatives contracts worldwide totals.
Over a trillion dollars but less than a hundred trillon
Cash markets are also known as
Spot markets
A call option gives the holder
The right to buy something
Which of the following instruments are Contracts but are not securities?
E. B(options) and C(Swaps)
The positive relationship between risk and return is called
A. None of the above
A transaction in which an investor holds a position in the spot market and sells a futures contract or writes a call is
C. A hedge
Which of the following are advantages of derivatives?
E. All of the above
A forward contract has which of the following characteristics?
A. Has a buyer and a seller
Options on futures are also known as
B. Commodity options
A market in which the price equals the true economic value
D. Is efficient
Which of the following trade on organized exchanges?
C. Options
Which of the following markets is/are said to provide price discovery?
D. A(Futures) B(Forwards)
Investors who do not consider risk in their decisions are said to be
C. Risk Neutral
Which of the following statements is not true about the law of one price
Investors are risk neutral
Which of the following contracts obligates a buyer to buy or sell something at a later date?
B. Futures
The process of creating new financial products is sometimes referred to as
B. Financial Engineering
The process of selling borrowed assets with the intention of buying them back at a later date and lower price is referred to as
C. Shorting
In which one of the following types of contracts between a seller and a buyer does the seller agree to sell a specified asset to the buyer today and then buy it back at a specified time in the future at an agreed future price.
A. Repurchase Agreement
The expected return minus the risk free rate is called.
A. The risk premium
When the law of one price is violated in that the same good is selling for two different prices, an opportunity for what type of transaction is created?
D. Arbitrage Transaction
