Question 1 (5 points) Which ONE of the following statements on futures and forwards is INCORRECT? A. Forward contracts carry higher counter-party risk than futures contracts. B. Futures contracts are exchange-traded, while forward contracts are traded over-the-counter. C. Futures contracts are more liquid than forward contracts. D. The price of a futures contract is the price to purchase the contract, i.e., futures premium . E. Forwards contracts can be customized, while futures contracts are standardized contract. Question 2 (5 points) Which ONE of the following statements on CDS is INCORRECT? A. The buyer of CDS acquires protection from the seller against a default by a particular company or country (the reference entity) by making periodic payments to seller of the CDS B. CDS can be settled in cash or by physical delivery. C. CDS do not require collateral to be posted by either the buyer or the seller of the insurance. D. If credit event does not occur prior to maturity of contract, CDS seller does not make a payment to buyer. E. Generally, seller of protection pays compensation to buyer if acredit event" occurs and the contract is terminated. Question 3 (5 points) Which ONE of the following statements on employee stock options is INCORRECT? A. When an employee stock option is exercised, the company issues more shares and sells them to the employee for the strike price B. When employees leave after the vesting period in-the-money options are exercised immediately and out of the money options are forfeited. C. A company surprises the market with an announcement that it has granted stock options to senior execu- tives. The options are exercised four years later. Dilution takes place when the options are exercised. D. Employee stock options are call options issued by a company on its own stock. E. Employee stock options are often at-the-money when issued and is currently a charge to the income statement