ch. 24

A long contract obligates the holder to sell securities in the future

FALSE

An option that gives the holder the right to buy an asset in the future is a put.

FALSE

Futures contracts are subject to default risk.

FALSE

Interest-rate swaps are more liquid than futures contracts.

FALSE

Interest-rate swaps involve the exchange of a set of payments in one currency for a set of payments in another.

FALSE

One problem with a futures contract is finding a counterparty.

FALSE

Open interest allows investors to change the interest rate on futures contracts.

FALSE

To reduce the interest-rate risk of holding a portfolio of bonds, Treasury bond futures contracts should be bought.

FALSE

Using options to control interest-rate risk reduces the chance of a loss but increases the chance of a gain.

FALSE

A forward contract is more flexible than a futures contract.

TRUE

A short contract obligates the holder to sell securities in the future.

TRUE

Currency swaps involve the exchange of a set of payments on one currency for a set of payments in another.

TRUE

Futures contracts are standardized.

TRUE

Futures trading is regulated by the Commodity Futures Trading Commission.

TRUE

If Friendly Finance Company has more rate-sensitive assets than rate-sensitive liabilities, it may reduce risk with a swap.

TRUE

Intermediaries add value to the swap markets by reducing default risk.

TRUE

One advantage of using options to hedge is that the accounting transaction will never require the firm to show large unrecognized losses.

TRUE

Option premiums fall as the volatility of the underlying asset falls.

TRUE

Option premiums increase as the term to maturity increases.

TRUE

The 2007-2009 financial crisis illustrates that derivatives cannot be used to hedge -- financial institutions should be barred from using them in any form.

TRUE

To reduce foreign exchange risk from selling goods to a foreign country, futures contracts should be sold.

TRUE