Reading 70: Derivative Markets and Instruments - LOS b, ( statements, following, about, least, style

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1.Which of the following statements about futures contracts is least accurate?

A)   The futures clearinghouse allows traders to reverse their positions without having to contract the other side of the initial trade.

B)   To safeguard the clearinghouse, the exchange requires traders to post margin and settle their accounts on a weekly basis.

C)   Offsetting trades rather than exchanges for physicals are used to close most futures contracts.

D)   One difference between forwards and futures is that futures contracts have standardized contract terms.

2.A contract that involves a series of forward commitments is a:

A)   swap.

B)   strap.

C)   future.

D)   stack.

3.A futures contract is NOT:

A)   a forward contract.

B)   an equity security.

C)   a standardized instrument.

D)   exchange-traded.

4.Which of the following statements regarding forward contracts is TRUE?

A)   The buyer of a forward contract has agreed to deliver the underlying asset at a specific price and date in the future whereas the seller has agreed to accept delivery of the underlying at the same agreed upon price and date.

B)   When prices increase, the buyer of a forward contract gains and the seller of a forward contract loses.

C)   The buyer of a forward contract gains when prices decrease, and the seller of a forward contract loses when prices increase.

D)   When prices decrease, the buyer of a forward contract gains, and the seller of a forward contract loses.

5.A futures contract is NOT:

A)   standardized.

B)   backed by the clearinghouse.

C)   illiquid.

D)   regulated.

6.Which of the following contracts is least likely to be traded on an exchange?

A)   Futures contract.

B)   Forward commitment.

C)   Derivative.

D)   Forward contract.