6. Which one of the following statements is incorrect regarding the margining of exchange-trade futures contracts? (a) If an investor fails to deposit variation margin in a timely manner, the positions may b liquidated by the carrying broker. (b) Initial margin is the amount of money that must be deposited when a futures contract opened. (c) A margin call will be issued if the investor's margin account balance drops below the mainte nance level. (d) A margin call will be issued only if the investor's margin account becomes negative 2

6. Which one of the following statements is incorrect regarding the margining of exchange-trade futures contracts? (a) If an investor fails to deposit variation margin in a timely manner, the positions may b liquidated by the carrying broker. (b) Initial margin is the amount of money that must be deposited when a futures contract opened. (c) A margin call will be issued if the investor's margin account balance drops below the mainte nance level. (d) A margin call will be issued only if the investor's margin account becomes negative 2

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A swap: Group of answer choices B. Gives the holder the right to see the underlying bond. A. Allows the buyer to purchase the underlying instrument. C. Is an OTC agreement to exchange the cash flows of two different securities. D. Not effective at managing interest rate risks.
Q9. How would you hedge the risk of a price rise using a derivative? Group of answer choices 1. You would take out a spot contract to sell the underlying. 2. You would take out a forward contract to sell the underlying. 3. You would take out a spot contract to buy the underlying. 4. You would take out a forward contract to buy the underlying.
A bank seeding to avoid lower than expected yields from loans and security investments is most likely to use: OA short position or selling hedge in futures. O Along position or buying hedge in futures. O Along position in put option on futures contracts. OA long position or buying hedge in futures and a long position in put option on futures contracts. O None of the options are correct. D
Exchanges are different than Over the counter markets because on exchanges A. Futures contracts are standardized B. All of the Above C. Futures require margin D. Futures are traded on an exchanges that clear
All of the statements below are true of futures contractsexcept that futures contracts: O a. result in predictable gross profits. O b. result in predictable cash flows. O c. eliminate downside risk and upside potential. O d. eliminate downside risk while allowing for upside potential.
All of the following are reasons for engaging in swaptions, which one is not? a. Swaptions are utilized by parties who anticipate the need for a swap at a later date but want to lock in a set rate today while keeping the option of not engaging in the swap later or engaging in the swap at a better market rate.b. Swaptions are used by parties entering into a swap to give them the flexibility to terminate the swap.c. Swaptions are used by parties to speculate on interest rates.d. To create a stream of equivalent payments or annuity on the type of swaption.
An increase in a firms inclination to pay dividends may be because of a decline in profitable investment opportunities in the future. is this true or false and why. relevant or not, frequent changes in dividend policy can harm a firm. is this true or false and why. what is the essential feature of a forward contract that makes a futures contract a type of forward contract,
Can a derivative security's value be determined by an underlying single stock (e.g., IBM, MMM, GE)? If no, explain. Can a derivative security's value be determined by an underlying fixed income index? If yes, explain. What is the difference objective, if any, between a long futures contract, a put option contract, and a long forward contract? What are the two primary functions of derivative securities (i.e., what classifications of participants do they serve)? Finally, what does "market efficiency" suggest? Explain the significant advantage and disadvantage of Inflation Protected Treasury Bonds (TIPS). Who or what investor would likely prefer a municipal bond issued by the Commonwealth of Virginia? If a corporate bond yields 8%, to be competitive (e.g., indifferent), what would a municipal bond need to yield for an investor in the 40% tax bracket? In municipals, what, if any, is the difference between a general obligation and revenue bond? What is a pass-through security, a conforming…
What kind of interest rate swap would a commercial bank with a negative re - pricing gap (that is, rate sensitive assets is less than rate sensitive liabilities) utilize to hedge rate risk exposure (that is, would the commercial bank enter into an interest rate swap to make floating rate payments and receive fixed rate payments)? Explain
The basis is defined as the spot price minus the futures price. A trader is hedging the sale of an asset with a short futures position. The basis increases unexpectedly. Which of the following is TRUE? a. The hedger’s position stays the same. b. The hedger’s position improves. c. The hedger’s position sometimes worsens and sometimes improves. d. The hedger’s position worsens.
Which of the following is true? A.Forward contract buyers and sellers do not know who the counterparty is B.Future contracts are marked to market daily. C.Forward contracts have no default risk. D.Futures contracts involve high default risk
Organized exchanges offer important advantages like (a) mitigating credit risk and (b) providing liquidity. But they have the following market imperfections: 1. Open interest in futures contracts declines for longer maturities; so, for liquidity reasons, you may be unable to hedge longer deliveries using longer maturity futures contracts. Explain briefly how you would overcome these market imperfections.

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