Question 47 Financial futures have become an increasingly attractive investment

Question

Question 47

Financial futures have become an increasingly attractive investment alternative since the Chicago Board of Trade (CBOT) began trading them in 1977, and their hedging function partly accounts for the growth in trading. Which of the following statements concerning financial futures is true?

Financial futures protect the investment portfolio against inflation in the economy.

Investors seek protection against the increasing volatility of interest rates.

Unlike commodity futures, factors that influence price shifts are not supply and demand of the commodity but buyer psychology.

A reason for their popularity is that trading is restricted to government obligations, which reduces risks.

All of the above are true statements

Question 40

A call option differs from a put option in that

a call option obliges the investor to purchase a given number of shares in a specific common stock at a set price; a put obliges the investor to sell a certain number of shares in a common stock at a set price.

both give the investor the opportunity to participate in stock market dealings without the risk of actual stock ownership.

a call option gives the investor the right to purchase a given number of shares of a specified stock at a set price; a put option gives the investor the right to sell a given number of shares of a stock at a set price.

a put option has risk, since leverage is not as great as with a call.

none of the above

Question 38

The derivative based strategy known as portfolio insurance involves

The sale of a put option on the underlying security position.

The purchase of a put on the underlying security position.

The sale of a call on the underlying security position.

The purchase of a call on the underlying security position.

b and d.

Question 37

An equity portfolio manager can neutralize the risk of falling stock prices by entering into a hedge position where the payoffs are

Not correlated with the existing exposure.

Positively correlated with the existing exposure.

Negatively correlated with the existing exposure.

Any of the above.

None of the above.

Question 28

Growth rates of the (1) labor force, (2) average number of hours worked and (3) labor productivity are the main determinants of a foreign country's

Dividend payout ratio.

Beta.

Real risk free rate.

Nominal risk free rate.

Risk premium.

Question 31

Revenue bonds are

U.S. Treasury bonds backed by the full faith and credit of the issuer.

U.S. Treasury bonds backed by income generated form specific projects.

Municipal bonds backed by the full faith and credit of the issuer.

Municipal bonds backed by income generated from specific projects.

A type of U.S. agency security.

Question 32

Collateralized Mortgage obligations are

Mortgage pass-through securities.

Mortgage pass-through securities with varying maturities.

Mortgage pass-through securities with no default risk.

Mortgage pass-through securities with variable coupon rates.

None of the above.

Financial futures protect the investment portfolio against inflation in the economy.

Investors seek protection against the increasing volatility of interest rates.

Unlike commodity futures, factors that influence price shifts are not supply and demand of the commodity but buyer psychology.

A reason for their popularity is that trading is restricted to government obligations, which reduces risks.

All of the above are true statements

Explanation / Answer

Financial futures are future contracts based on the short term benchmark index interest rate to provide shield against the volatility in market interest rate. The common benchmark interest rate is LIBOR.

Thus, the correct answer is option

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.