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Chapter 13 Sec & Inv

Chp 13 Securities and Investments Study Guide

QuestionAnswer
A standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date. Financial Futures Contract
Financial futures are traded to speculate on prices of securities or to hedge existing exposure. This Statement is True.
Maintain their futures positions for longer period of time. Position traders
Take positions to profit from expected changes in the futures prices. Hedgers
Attempt to capitalize on price movements during a single day. Day traders
Order in which the trade is executed at the prevailing price. market order
The operations of financial futures exchanges are regulated by the Commodity Futures Trading Commission
Financial institutions generally use futures contracts to increase risk. This Statement is False.
Order in which the trade is executed if the price is within the limit specified by the customer. limit order
The price of an interest rate futures contract reflects the expected price of the underlying security on the settlement date. This Statement is True.
Financial institutions commonly take a position in interest rate futures to create a short hedge, which represents _________________ of a futures contract. the sale
The use of a futures contract on one financial instrument to hedge a position in a different financial instrument is called Cross hedging
Speculators who expect the stock market to perform well before the settlement date may consider ______________________ S&P 500 index futures. purchasing
Participants who expect the stock market to perform poorly before the settlement date may consider _________________ S&P 500 index futures. selling
The risk that a loss will occur because a counterparty defaults on the contract. Credit Risk
Refers to potential price distortions due to lack of liquidity. Liquidity Risk
The intertwined relationships among firms may cause one trader’s financial problems to be passed on to other traders. Systemic Risk
Refers to fluctuations in the value of the instrument as a result of market conditions. Market Risk
Refers to the possibility that the assets to be hedged may be prepaid earlier than their designated maturity. Prepayment Risk
The risk of losses as a result of inadequate management or controls. Operational Risk
The risk that the position being hedged by the futures contracts is not affected in the same manner as the instrument underlying the futures contract. Basis Risk
The Financial Reform Act in 2010 created the Financial Stability Oversight Council. This Statement is True.
Take positions to profit from expected changes in the futures prices. Speculators
Created by: mrstephens