In the context of financial derivatives, what is a futures contract? A) An agreement to exchange assets at a predetermined price and date. B) A contract that grants the holder the right, but not the obligation, to buy or sell an asset. C) A contract to buy or sell a specific quantity of an asset at a future date at a price specified today. D) A contract that provides regular interest payments and returns the principal at maturity.
In the context of financial derivatives, what is a futures contract? A) An agreement to exchange assets at a predetermined price and date. B) A contract that grants the holder the right, but not the obligation, to buy or sell an asset. C) A contract to buy or sell a specific quantity of an asset at a future date at a price specified today. D) A contract that provides regular interest payments and returns the principal at maturity.
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
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Transcribed Image Text:In the context of financial derivatives, what is a futures contract?
A) An agreement to exchange assets at a predetermined price and date.
B) A contract that grants the holder the right, but not the obligation, to buy or sell an asset.
C) A contract to buy or sell a specific quantity of an asset at a future date at a price specified today.
D) A contract that provides regular interest payments and returns the principal at maturity.
Expert Solution
Step 1: Introduction of future contracts
A future contract is a standardized financial derivative that binds two parties to purchase or sell a particular quantity of an underlying asset at a predetermined price on a given future date. Commodities, financial instruments, or currency exchange rates are just a few examples of the assets that these contracts are associated. Future contracts are actively traded on exchanges, providing liquidity and assisting in price discovery across a range of industries.
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