1) Both futures contracts and forward contracts are classified as derivatives because:

a. they are derived from each other

b. because they are both bought and sold

c. because they are based on the value of an underlying asset

d. they both speculate on future prices

2) A futures contract is written for the buyer and is sold over-the counter. T or F.

3) The balance on an initial performance bond changes-------------.

4) A futures contract:

a. can speculate that an asset will increase or decrease in price

b. lock in a future purchase or sales price for an asset

c. does not have to be exercised

d. all of the above

5) Futures currency prices are expressed in European terms. T or F.

6) The open interest for a futures contract is greatest for the--------------contract.

7) A call option is in-the money if the spot price of an asset at expiration is greater than the exercise price. T or F.

8) A put option is out-of the-money if the exercise price is less than the spot price at expiration. T or F.

9) If you purchase a european call option, you can hedge your risk by;

a. investing the present value of the exercise price at the risk-free interest rate

b. buying a single unit of a foreign currency and investing it at the foreign interest rate

c. investing the current exercise price at the risk-free interest rate

d. selling a unit of a foreign currency and investing it at the domestic interest rate

10) Buying a single unit of a foreign currency and investing it at the foreign interest rate:

a. always earns a higher return than purchasing a european call option and investing the present value of the exercise price at the risk free rate

b. always earns a lower return than purchasing a european call option and investing the present value of the exercise price at the risk free rate

c.is less speculative than buying a european call option

d. is more speculative than a european call option