1. A merchant trading wheat signs an irrevocable agreement with a wheat farmer to buy 1,000 tons of wheat next season @ USD 200 per ton with delivery at his warehouse. He pays an advance of USD 20 per ton to lock in the agreement.

1. The above example is of a future trade.
2. The above example is of a forward contract.
3. With this agreement the merchant has an option to buy 1,000 tons of wheat on the due date but not an obligation.
4. None of the above.

2. Company A has 1,000,000 outstanding shares, it made $ 1,000,000 in profits and its share price is $ 10.

1. Company As market capitalization cannot be ascertained from the above statement but price earning (PE) ratio can be ascertained.
2. Company As PE ratio can be ascertained but not its market capitalization.
3. Neither market capitalization nor PE multiple of Company A can be ascertained from above statement.
4. Both PE multiple and market capitalization can be ascertained by above statement.

3. Eric started a computer shop investing $20,000 of his money. Of this $10,000 is his equity portion and $ 10,000 he has extended as loan to business.

1. Assets side of the balance sheet of computer shops balance sheet shows an entry of a credit of $20,000 as cash.
2. The liability of the balance sheet shows $ 30,000. $10,000 being loan he extended to the business and cash of $ 20,000 credited in bank.
3. The liability side of balance sheet shows $10,000 as debts the company owes to Eric and $10,000 as Erics equity in computer shop

1. Statements (i), (ii) and (iii) are all true.
2. Statements (i) and (ii) are true.
3. Statements (ii) and (iii) are true.
4. Statements (i) and (iii) are true.

4. How do insurance companies make profits when they have to pay out huge amount whenever insurance claim is laid?

1. Insurance companies dont usually honor the claim.
2. Misfortunes are random and rare, insurance companies can make money by collecting premiums from a large number of clients even when they may have to pay out every once in a while.
3. Insurance companies often have complex contracts with exclusions that limit their risks further.

1. Statement (i) is true.
2. Statements (i) and (ii) are true.
3. Statements (i) and (iii) are correct.
4. Statements (ii) and (iii) are correct.

5. Bank A surrenders its USD funds that are due next month to Bank B in exchange of banks Bs RMB funds due next month instead. Interest rate on USD is 3% p.a. whereas interest rate on RMB is 6%. The above transaction is an example of:

1. Interest Rate Swap.
2. Currency Swap.
3. Forward contract.
4. Future.