5. Lower risk free rates results in __________ Put Option prices and ______ Call

Question

5. Lower risk free rates results in __________ Put Option prices and ______ Call Option Prices.

Higher, Higher

b)Higher, Lower

c)Lower, Lower

d)Lower,Higher

6. Which Statement is correct?

Speculators make money by setting up transactions and are the go betweens in the derivatives market.

A firm should always hedge in order to reduce risk whenever they can

Hedgers do not mind losing money as long as they are reducing their risk

Brokers try to find mispricings in the market where they can buy at a low price and simultaneously sell at a high price without taking on any risk.

7. Which statement regarding executive stock options is correct?

a)They are short term and usually expire after one year.

b)They should reduce agency costs by making managers act like shareholders

c)They are included as compensation expense on the income statement.

d)Managers can sell the options on an exchange

8. Which of the following statements are correct?

a)Forward contracts are standardized and trade on an exchange

Profits and Losses on Futures contracts are marked to market on a daily basis.

c)Delivery of the assets almost never occurs in the forward market

d)Futures contracts allow you to buy or sell individual stocks for a preset price on the expiration date.

9. You need a barrel of oil next month. You could either buy the oil today and keep it for a month, wait and buy the oil next month when you need it, you could enter into a futures contract to buy oil at the current futures price $81, or you can pay $2 for a call option that gives you the right to buy oil for $80. The current spot price is $79 and the risk free rate is 2%, and carrying costs are $2. If the price ends up being $84 next month, then you should have ______________.

Waited to buy the oil

b)Entered into a futures contract

c)Bought a call option

d)Buy the oil today and store it for a month.

10. Which of these should cause the dollar to appreciate?

a)A decline in foreign demand for US goods and services         

b)An increase in US demand for foreign goods and services

c)An increase in foreign demand for US financial assets

d)An increase in the amount of gold held by the US central bank

Explanation / Answer

1) Higher , Higher

2) A firm should always hedge in order to reduce risk wherever the can

3) They are included as compensation expense in the income statement

4) Entered into a future contract

5) An increase in the amount of gold held by the US central bank

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

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