1. Professional gamblers know that the odds are always in favor of the house (casinos). The fact that they gamble says they are
A. irrational.
B. risk-neutral.
C. risk-averse.
D. risk seekers.
2. The clearing corporation's main role in the futures market is to:
A. set the market price of the contract.
B. act as the counterparty to both sides of the transaction, thereby guaranteeing payment.
C. provide the underlying assets so the contracts can be created.
D. all of the above.
3. Marking to market is a process that:
A. involves a transfer of risk.
B. ensures that the buyers and sellers receive what the contract promises.
C. always requires the sellers of contracts to transfer funds to the buyers of contracts.
D. buyers and sellers can request for an additional fee when the contract is created.
4. Considering a put option, an increase in the strike price:
A. causes the intrinsic value of the option to decrease if it is above zero.
B. causes the intrinsic value of the option to increase if it is above zero.
C. causes the value of the option to decrease.
D. makes the option worthless.
5. The intrinsic value of a call option:
A. is the difference between the option price and the interest rate.
B. must be less than or equal to zero.
C. is the greater of zero or the difference between the price of the underlying asset and the strike price.
D. will be negative if the time value of the option is negative.