Unit 16

Which of the following statements is TRUE? A) A futures contract always requires delivery of an asset. B) Unlike forwards, futures are not traded on an exchange. C) A futures contract does not involve obligations to buy or sell an asset. D) A futures contract has standardized terms.

D

The term sweetener would most often apply to A) derivatives B) warrants C) rights D) convertibles

B

You have a client who has sold short 100 shares of RIF, a stock listed on the NYSE. If the client wished to use options to protect against unlimited loss, you would suggest the client A) sell 1 RIF put B) buy 1 RIF call C) buy 1 RIF put D) sell 1 RIF call

B

Which of the following is not traded on any exchange? A) Futures contracts B) Forward contracts C) ETFs D) Closed-end funds

B

Derivatives can serve many purposes. However, investors should be aware that there are positions which can result in A) generation of income B) asset protection C) unlimited loss D) potential gains

C

Exercise of which of the following would NOT result in the money going to the issuer? A) A call option B) Convertible preferred stock C) Warrants D) Rights

A

A commodities speculator purchases a 1,000 bushel wheat futures contract at $.50 per bushel. At expiration, the settlement price is $.45 per bushel. This individual A) effectively hedged the long wheat position B) has a $50 loss C) must make delivery of the wheat D) has a $50 gain

B

An investor who was sure that a stock's price was going to move substantially, but wasn't sure in which direction, would be able to benefit by A) selling the stock short and purchasing a call on the stock B) writing a straddle on that stock C) purchasing the stock and a put on the stock D) purchasing a straddle on that stock

D

If your customer owns 100 shares of a volatile stock and wants to limit downside risk, you may recommend A) buying puts B) shorting the same stock C) buying calls D) writing calls and selling puts

A

Buying a put option on a security he holds allows an investor to A) increase his profit if the security declines in price B) participate in additional gains if the security continues to increase in price C) buy more stock if he exercises the put D) receive the premium for the purchase of the put

B

One of the privileges frequently offered to holders of common stock is A) call options B) preemptive rights C) put options D) warrants

B

Options positions can either create rights or obligations. In which option position has the investor created the possible obligation to purchase stock? A) Selling a call B) Purchasing a call C) Selling a put D) Purchasing a put

C

Many investors with a long position in common stock employ the technique of writing call options on the underlying stock for the purpose of A) increasing the dividend return B) participating in the growth of the company C) protecting the premium D) generating income

D

In general, the value of a derivative is primarily determined by I. the price volatility of the underlying asset II. the exchange on which it is traded III. the length of time until the contract expires IV. whether purchased from a broker or a dealer A) I and III B) I and II C) III and IV D) II and III

A

The term derivative would apply to all of the following EXCEPT A) forwards B) futures C) hedge funds D) options

C