ACC2363_QUIZ 1_Q #67

Determine which of the following is NOT a distinguishing characteristic of futures contracts, relative to forward contracts. Question *       A. Contracts are settled daily, and marked-to-market.       B. Contracts are more liquid, as one can offset an obligation by taking the opposite position.       C. Contracts are more customized to suit the buyer’s needs.       D. Contracts are structured to minimize the effects of credit risk.       E. Contracts have price limits, beyond which trading may be temporarily halted.

The following statements relate to derivatives. Which of the following is FALSE?a. Swaps may have cashflows as its underlying assets.b. Options allow the buying party to pay a price for a chance to buy or sell the underlying asset .c. Futures are forward commitments.d. Futures and forwards may be contingent claims wherein the contract can be cancelled upon the agreement of both parties.

Which of the following is a reason why the default risk of a futures contract is assumed to be less than that of a forward contract? a. Forward contracts can be tailored, while future contracts are non-standardized. b. Forward contracts are classified as exotic derivatives.   c. Futures contracts are exchange-traded contracts, daily settlements are implemented by the clearing house. d. More flexibility as the buyer can decide whether or not to exercise the contract at maturity.   e. For futures contracts, all cash flows are required to be paid at one time on contract maturity.

The fact that the clearinghouse is the counterparty to every futures contract issued is important because it eliminates _________ risk. A. Market B. Basis C. Interest rate D. Credit

The advantage of using a forward rate agreement FRA over a futures contract is: *       A. FRAs are highly standardized.       B. FRAs have only an initial margin and no ongoing maintenance margin.       C. the terms and conditions of a FRA can be negotiated.       D. FRAs have standardized maturities

What are the key differences between future and forward contracts? a) direct contract for forwards b) clearing house for futures c) futures have less risk d) futures have a standard amount

Which derivative does not reduce financial risk?a. optionsb. swapsc. futuresd.forwardse. answer not given

A futures contract a. is not traded on an organized exchange and is customized to meet the needs of the parties. b. is not traded on an organized exchange and is subject to formal regulations which results in standardized contrasts. c. is traded on an organized exchange and is subject to formal regulations which results in standardized contrasts. d. is traded on an organized exchange and is customized to meet the needs of the parties.

? Which of the following is NOT true. An options contract is a contractual agreement between two parties. is based on the value of an underlying security. obliges the holder to exercise it at the expiration date. gives a trader the right to buy or sell the underlying security.

One of the differences between a forwardand a futures  contract is  forward contracts are standardized in the size but futures contracts are tailored to the needs of the parties involved b) a futures contract holder can legitimately close the contract but forward contracts cant be cancelled  c)there are physical exchanges for trading forward contracts whereas futures contracts are traded over the counter d)all of the above

Which is true about Futures contracts? a. is not traded on an organized exchange and is customized to meet the needs of the parties. b. is not traded on an organized exchange and is subject to formal regulations which results in standardized contrasts. c. is traded on an organized exchange and is subject to formal regulations which results in standardized contrasts. d. is traded on an organized exchange and is customized to meet the needs of the parties.

What is the main purpose of a hedging strategy using a forward contract or a futures contract? Explain very briefly.

A seller of a futures contract can choose not to deliver the underlying asset. True O False

(a) Outline in detail what is meant by a forward and futures contract. Evaluate the relationship between futures price and spot price, and give reasons to justify the necessity for exchange margin accounts.   (b) Explain the concept of cost of carry model and its role in the pricing of financial futures contracts.

Which of the following is NOT true O a. Futures contracts nearly always last longer than forward contracts O b. Delivery or final cash settlement usually takes place with forward contracts; the same is not true of futures contracts. O c. Futures contracts are standardized; forward contracts are not. O d. Forward contracts usually have one specified delivery date; futures contract often have a range of delivery dates.

A derivative is a financial instrument whose value is determined by A. an underlying security. B. a regulatory body such as the SEC. C. futures and options. D. None of these options are correct.

Which of the following is true about derivatives? a. Value of derivative is derived from predetermined asset  b. The terms and conditions are flexible under derivative trading c. Derivative markets are suitable for low risk investors d. Risk on derivatives market are always low     no need for explaination ..please only give answer

Advantages of currency futures contracts relative to forward contracts include _     a. Higher liquidity b. Standardized contract specifications c. Freedom to sell the contract before maturity d. All of the above

Can you please help with the question in the picture attached? The answer should be only one and I’m quite confused. Thank you!

Which is a key difference a manager should note in choosing between forward and futures contracts?a. Exchange trading makes forward contracts more liquid.b. Futures contracts carry standardized terms, while forward contracts can be tailored to meet specific needs.c. Futures contracts have greater default risk than forward contracts.d. Forward contracts require initial margin deposits and daily marking to market, while futures do not.

One difference between futures contracts and forward contracts is that futures contracts are standardized (quality, quantity, expiration, delivery terms, etc.) while forward contracts are not (they can be customized). Select one: ● True False