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Please complete this with good detail and accuracy! Problem 1 Generally, hedging transactions are: A. Negative NPV transactions. B. Positive NPV transactions. C. Positive or

Please complete this with good detail and accuracy!

Problem 1

Generally, hedging transactions are:

A.

Negative NPV transactions.

B.

Positive NPV transactions.

C.

Positive or negativ

e NPV transactions.

D.

Zero

-

NPV transactions.

E.

None of these answers.

Problem 2

When a firm hedges a risk it:

A.

Eliminates the risk.

B.

Transfers the risk to someone else.

C.

Reduces the risk.

D.

Makes the government assume the risk.

E.

Increases the risk.

Problem 3

Which of the following statements about forwards, futures, and options

is correct?

A.

Forward contracts and futures contracts are economically similar, but

vary greatly in how they are traded.

B.

Futures contracts and options contracts are

economically similar, but

vary greatly in how they are traded.

C.

Forward contracts and options contracts are economically similar, but

vary greatly in how they are traded.

D.

Forward contracts, futures contracts, and options contracts are all

economically simil

ar, but vary greatly in how they are traded.

E.

None of the above answers.

Problem 4

The term "derivatives" refers to:

I) forwards; II) futures; III) swaps; IV) options

A.

I and II only.

B.

I, II, and III only.

C.

III and IV only.

D.

I, II, III, and IV.

E.

I and

IV only.

Problem 5

One can describe a forward contract as agreeing today to buy a product:

A.

At a later date at a price to be set in the future;

B.

Today at its current price;

C.

Today at a price to be set in the future;

D.

At a later date at a price set today;

E.

If and only if its price rises above its exercise price

Problem 6

2

The seller of a forward contract agrees to:

A.

Deliver a product at a later date for a price set today.

B.

Receive a product at a later date at th

e price on that later date.

C.

Receive a product at a later date for a price set today.

D.

Deliver a product at a later date for a price set on that later date.

E.

None of the above answers.

Problem 7

The price for immediate delivery of a commodity is ca

lled the:

A.

Forward price.

B.

Exercise price.

C.

Spot price.

D.

Impact price.

E.

English price.

Problem 8

Hedging contracts on a futures exchange eliminates:

A.

Market risk.

B.

Counterparty risk.

C.

Default risk.

D.

Currency risk.

E.

None of the above answers.

Problem 9

Four investors enter into long oil contracts. Three are speculators and

one is hedging. Which of the following is hedging?

A.

Farmer

B.

Cereal company

C.

Mutual fund

D.

Airline company

E.

None of these answers

Problem 10

What investment would be a h

edge for a corn farmer?

A.

Long corn put option.

B.

Long corn call option.

C.

Short corn call option.

D.

Long corn futures.

E.

None of these answers

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