16.

If a central bank decreases interest rates, then gradually:

a.

the country's gross domestic product is likely to decrease.

b.

foreign exchange rate is likely to appreciate.

c.

demand for exported goods and services is likely to increase.

d.

flows of investment funds into the country are likely to decrease.

17.

Basis risk refers to the risk:

a.

associated with unanticipated price movements on the underlying asset.

b.

of default on the futures contract.

c.

associated with anticipated price movements in the cash market.

d.

from a change in the spread between the price on the commodity or financial security in the physical market and the price of the related futures contract.

18.

When an oil company suffers severe damage to one of its oil drilling platforms, this is an example of:

a.

financial risk.

b.

operational risk.

c.

technological risk.

d.

business risk.

19.

An option that gives the option buyer the right to sell the commodity or financial instrument specified in the contact at the exercise price is called:

a.

an American option.

b.

a call option.

c.

a put option.

d.

a European option.

20.

All else being equal, if a central bank sells government bonds from the market it would:

a.

decrease the money supply.

b.

decrease interest rates.

c.

mean the supply of loanable funds would move to the right.

d.

most likely decrease savings in the economy.