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