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Chapter 13 Sec & Inv
Chp 13 Securities and Investments Study Guide
Question | Answer |
---|---|
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 |