Question 9 For each part, identify the correct answer(s) from the list provided. Each part has only one correct answer unless otherwise specified. Please write your answer(s) in the space provided next to each question. (a) If the cost of carry model holds, what should be the shape of the forward curve for natural gas? 1. Upward sloping. 2. Downward sloping. 3. Flat. 4. Could be any of the above. (b) Exchange-traded derivatives usually offer which of the following advantages (may be more than one correct answer) compared to over-the-counter derivatives? 1. Greater customization. 2. Greater liquidity. 3. Lower transaction costs. 4. The clearinghouse is willing to buy or sell contracts. (c) Consider the deltas () for European call and put options on a given asset where the options have the same exercise price and same time to expiration. Which of the following is true? 1. Call option delta is always lower. 2. Call option delta is always greater. 3. The call and put deltas are always the same. 4. Call option delta may be higher, lower, or equal. (d) In the absence of market imperfections, which of the following values is greater? 1. The one-year forward price, discounted by the riskless interest rate. 2. The expected spot price in one year, discounted by the relevant risky discount rate. 3. The values in 1 and 2 are the same. 4. The value in either 1 or 2 could be greater depending on the level of carrying costs. (e) The basis risk associated with unwinding a futures hedge prior to expiration is usually the greatest for futures contracts on which of the following assets? 1. S\&P 500 stock index. 2. Soybeans. 3. British pounds. 4. Silver. (f) Consider a buyer of crude oil who wants to cap its purchase price. Which of the following can be structured to have zero upfront cost (may be more than one correct answer)? 1. A price cap. 2. A price collar. 3. A protected collar. 4. A participating collar