Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 26, Problem 2PS
Summary Introduction

To discuss: The given statements are true or false.

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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.
3. Why is the initial value of a futures contract zero? a. impossible to tell b. the futures is immediately marked-to-market c. you do not pay anything for it d. the basis will converge to zero e. the expected profit is zero
6. Which one of the following statements is incorrect regarding the margining of exchange-traded futures contracts? (a) If an investor fails to deposit variation margin in a timely manner, the positions may be liquidated by the carrying broker. (b) Initial margin is the amount of money that must be deposited when a futures contract is 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
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