Multiple Choice
1. The Orange County, California bankruptcy was largely due to the Treasurer’s use of
a. derivatives.
b. Mortgage-backed securities.
c. repurchase agreements.
d. zero coupon bonds.
2. All of the following are true regarding futures contracts except
a. they are marked to market.
b. they require payment of a performance bond.
c. they are a legally enforceable promise.
d. they are regulated by the SEC.
3. A security giving you the right to sell is a
a. put option.
b. call option.
c. short futures contract.
d. long futures contract.
4. A forward contract is most similar to a
a. futures contract.
b. call option.
c. put option.
d. debt security.
5. A person who combines derivatives with a business risk is a __________.
a. speculator
b. hedger
c. spreader
d. trader
6. Which of the following is not a principal category of derivative asset?
a. options
b. futures
c. straddles
d. swaps
7. Finance is sometimes called
a. the study of arbitrage.
b. applied accounting.
c. behavioral economics.
d. mathematical science.
8. Derivative use includes all of the following except
a. income generation.
b. long-term capital appreciation.
c. speculation.
d. risk management.
9. Writing an option refers to
a. the establishment of a new position.
b. the sale of an existing position.
c. the creation and sale of a position.
d. the purchase of an existing position.
10. Futures contracts trade on all of the following except ___________.
a. silver
b. the weather
c. live cattle
d. land