Which of the following is NOT true. An options contract is a contractual agreement between two parties. is based on the value of an underlying security. obliges the holder to exercise it at the expiration date. gives a trader the right to buy or sell the underlying security.

Which of the following is NOT true. An options contract is a contractual agreement between two parties. is based on the value of an underlying security. obliges the holder to exercise it at the expiration date. gives a trader the right to buy or sell the underlying security.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter13: Marketable Securities And Derivatives

Section: Chapter Questions

Problem 7Q

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Concept explainers

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.

Question

?
Which of the following is NOT true.
An options contract
is a contractual agreement between two parties.
is based on the value of an underlying security.
obliges the holder to exercise it at the expiration date.
gives a trader the right to buy or sell the
underlying security.

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The following statements relate to derivatives. Which of the following is FALSE?a. Swaps may have cashflows as its underlying assets.b. Options allow the buying party to pay a price for a chance to buy or sell the underlying asset .c. Futures are forward commitments.d. Futures and forwards may be contingent claims wherein the contract can be cancelled upon the agreement of both parties.
Payoff from entering into a forward contract does the buyer have more to gain going long than the seller has to lose going short, profits if the price of the underlying at expiration exceeds the forward price and/or gains from owning the underlying versus owning the forward contract are equivalent? Explain why one or more of the options above are correct. and why, if any of the remaining options are incorrect.
In Swap contract one counter party has an obligation but not right, while in an option contract the seller has an obligation. Do you agree?
In which of the following contracts BOTH parties have an OBLIGATION to exercise the contract? a) Call Option b) Futures c) Put Option d) all of the above none of the above
The seller (or the writer) of a call option: may have the obligation to sell the underlying asset at a strike price until an expiration date may have the obligation to buy the underlying asset at a strike price until an expiration date has the right to sell the underlying asset at a strike price until an expiration date has the right to buy the underlying asset at a strike price until an expiration date None of these answers are correct.
Which of the following is true about forward contract expiration? a.A deliverable forward contract stipulates that the short will pay the agreed-upon price to the long, who in turn will deliver the underlying asset to the short. b.Under cash settlement, it permits the short to pay the net cash value of the position on the delivery date. c.Under cash settlement, it permits the long to pay the net cash value of the position on the delivery date. d.Under cash settlement, it permits the long and short to pay the net cash value of the position on the delivery date.
Which of the following is true? A.Forward contract buyers and sellers do not know who the counterparty is B.Future contracts are marked to market daily. C.Forward contracts have no default risk. D.Futures contracts involve high default risk
Which of the following best describes an option contract? a. It gives the holder the obligation to buy or sell an underlying asset at a prespecified price for a specified time period. b. It gives the holder the right, but not the obligation, to buy or sell an underlying asset at a prespecified price for an unspecified time period. c. It gives the holder the right, but not the obligation, to buy or sell an underlying asset at a prespecified price for a specified time period. d. It gives the holder the right, but not the obligation, to buy or sell an underlying asset at an unspecified price for an unspecified time period.
Choose which sentance is false. A. When you own a call option, you have the right to buy the asset. B. A option contract gives the writer the right, but not the obligation, to buy or sell a particular asset on or before a specifice date in the furture at a specific price. C. When you own a put option, you have the right to sell the asset. D. When you own a stock option, you have right, but not the obligation, to buy or sell a share of stock on or before a given date for a given price.
one key difference between option contracts aND FUTURE CONTRACTS IS THAT IN AN OPTION CONTRACT, THE RIGHTS BELONG TO ONE PARTY TRUE OR FALSE
A swap: Group of answer choices B. Gives the holder the right to see the underlying bond. A. Allows the buyer to purchase the underlying instrument. C. Is an OTC agreement to exchange the cash flows of two different securities. D. Not effective at managing interest rate risks.
A derivative is a financial instrument whose value is determined by A. an underlying security. B. a regulatory body such as the SEC. C. futures and options. D. None of these options are correct.