Unit 2.A

Question 1

Speculators normally avoid a thin market:

A: True
B: False

Answer 1

A: True

Thin market = illiquid market. Both speculators and hedgers seek a liquid market with more participants and more volume

Question 2

Speculators provide liquidity:

A: True
B: False

Answer 2

A: True

The more participants in the market the greater the volatility

Question 3

The speculators role is to forecast prices:

A: True
B: False

Answer 3

B: False.

A speculators role is to provide liquidity to the market.

Question 4

A thin market in any particular exchange involves:

A: better opportunity for profit
B: Less chance for unfavorable deliver
C: risk of inability to efficiently offset position
D: rising open interest

Answer 4

C: A thin market involves the risk of low liquidity = not enough buyers or sellers to offset positions efficiently

Question 5

market volatility and market risk are:

A: inversely related
B: directly proportional
C: not related
D: not related in determinable ways

Answer 5

B: Directly proportional. The greater the volatility = the greater the risk of a position in that contract