1. When a firm hedges a risk it:
A. Eliminates the risk.
B. Transfers the risk to someone else.
C. Reduces the risk.
D. Makes the government assume the risk.
E. Increases the risk.
2. Which of the following statements about forwards, futures, and options is correct?
Forward contracts and futures contracts are economically similar, but vary greatly in how they are traded.
Futures contracts and options contracts are economically similar, but vary greatly in how they are traded.
Forward contracts and options contracts are economically similar, but vary greatly in how they are traded.
Forward contracts, futures contracts, and options contracts are all economically similar, but vary greatly in how they are traded.
E. None of the above answers.
3. The term "derivatives" refers to:
I) forwards; II) futures; III) swaps; IV) options
A. I and II only.
B. I, II, and III only.
C. III and IV only.
D. I, II, III, and IV.
E. I and IV only.
4. One can describe a forward contract as agreeing today to buy a product:
A. At a later date at a price to be set in the future; B. Today at its current price;
C. Today at a price to be set in the future;
D. At a later date at a price set today;
E. If and only if its price rises above its exercise price
5. The seller of a forward contract agrees to:
A. Deliver a product at a later date for a price set today.
B. Receive a product at a later date at the price on that later date. C. Receive a product at a later date for a price set today.
D. Deliver a product at a later date for a price set on that later date. E. None of the above answers.