In the context of financial derivatives, what is a futures contract?A) An agreement to exchange assets at a predetermined price and date.B) A contract that grants the holder the right, but not the obligation, to buy or sell an asset.C) A contract to buy or sell a specific quantity of an asset at a future date at a price specified today.D) A contract that provides regular interest payments and returns the principal at maturity.

A future contract is a standardized financial derivative that binds two parties to purchase or sell…

Answered: In the context of financial…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter24: Enterprise Risk Management

Section: Chapter Questions

Problem 6Q

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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.
In the futures markets the buyer of a financial futures contract: a. has the obligation to deliver the underlying financial asset at the specified future date. b. takes the short position. c. takes the long position. d. has to record the contract with the clearing house.
In an interest swap contract, the exchange of cash flow calculated in each period is based upon the: a. notional principal. b. present value of notional principal. c. swap principal. d. face value of interest-bearing bond.
A contract to sell a bond investment. Entities can buy the contract through an exchange. a.)Long forward contract b.)Variable-to-fixed interest rate swap c.)Short forward contract d.)Currency swap e.)Long futures contract f.)Fixed-to-variable interest rate swap g.)Short futures contract
Interest-rate swaps are: Answer a. Exchanges of equity securities for debt securities b. Agreements involving swapping of options contracts c. Agreements that allow both parties to convert floating interest rates to fixed interest rates. d. Agreements between two parties to exchange periodic interest-rate payments over some future period
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.
In a conventional interest rate swap agreement,the fixed-rate payer is attempting to transform the variable-rate nature of its liabilities into fixed-rate liabilities true or false
Debentures are frequently issued at amounts greater or less than face value. Discuss how the market rate of interest, relative to the contractual rate of interest, affects the issue price of debentures.
34) What is an interest-rate futures contract? How does it differ from an interest-rate forward contract? 35) Explain using an example the statement that "at the expiration date of a futures contract, the price of the contract is the same as the price of the underlying asset to be delivered." 36) Where are financial futures traded? Describe that market.
Why might a company become involved in an interestrate swap contract to receive fixed interest payments andpay variable?
Describe how the price of a futures contract is established in theory, with reference to arbitrage.
When entering into a futures contract, the purchaser pays the contract premium to the seller. True False

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