14. True or False: The value of a swap contract is generally zero at origination and can changeimmediately after it is agreed to if the market changes. | Cierto o falso: el valor de un contrato deswap generalmente es cero en el origen y puede cambiar inmediatamente después de que seacuerde si cambia el mercado. *True | CiertoFalse Falso

A swap contract is a derivative instrument where the signing parties exchange cash flows or…

Answered: 14. True or False: The value of a swap…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Below is a chart with profit/loss on the vertical axis, and the $/£ exchange rate on the horizontal axis. The solid line shows the profit/loss schedule for a: Question 8 options: put option in isolation (e.g. used for speculating that the pound will depreciate) None of the above covered call option (a call option is used as a hedge) covered put option (a put option is used as a hedge)
Which of the following is the advantage of swaps? Answer choices: a. Early termination of swaps before maturity will not incur any cost. b. Swaps does not have up-front premium. c. Swaps are only used only for shorter periods d. The financial intermediaries cannot earn any commission, only parties of swap do.
6. Which one of the following statements is incorrect regarding the margining of exchange-traded futures contracts? (a) If an investor fails to deposit variation margin in a timely manner, the positions may be liquidated by the carrying broker. (b) Initial margin is the amount of money that must be deposited when a futures contract is opened. (c) A margin call will be issued if the investor's margin account balance drops below the mainte- nance level. (d) A margin call will be issued only if the investor's margin account becomes negative 2 6
All of the following are reasons for engaging in swaptions, which one is not? a. Swaptions are utilized by parties who anticipate the need for a swap at a later date but want to lock in a set rate today while keeping the option of not engaging in the swap later or engaging in the swap at a better market rate.b. Swaptions are used by parties entering into a swap to give them the flexibility to terminate the swap.c. Swaptions are used by parties to speculate on interest rates.d. To create a stream of equivalent payments or annuity on the type of swaption.
Q18. Which of the following is(are) true about derivatives? I An agreement that derives its value from an underlying asset. II Value of the derivative contract is fixed throughout the tenure. III Derivatives can be arranged over-the-counter or bought on an exchange. Group of answer choices 1. I and III 2. I and II 3. II and III 4. I only
The following statements relate to derivatives. Which of the following is FALSE?a. Swaps may have cashflows as its underlying assets.b. Options allow the buying party to pay a price for a chance to buy or sell the underlying asset .c. Futures are forward commitments.d. Futures and forwards may be contingent claims wherein the contract can be cancelled upon the agreement of both parties.
A firm gives all its employees American-style call options on the firm's stock. The options have a five- year life. The employees are not allowed to sell their options, but they can take long and short positions in the company's shares. As a result, if an employee does exercise his/her options, then he/she can sell the shares that they acquire. Which of the following statements is correct? O Highly risk-averse investors are better off exercising a fraction of their options early and holding a portfolio containing the remaining options and the shares obtained by exercising. O If the firm will not pay any dividends during the next five years, then an employee considering exercising prior to maturity will always be better off by undertaking trades in the firm's stock and borrowing or lending. O Options are more volatile than the underlying stock. Thus, if the options are in-the-money, employees with high risk aversion will be better off exercising their options, O If an employee believes…
Q9. How would you hedge the risk of a price rise using a derivative? Group of answer choices 1. You would take out a spot contract to sell the underlying. 2. You would take out a forward contract to sell the underlying. 3. You would take out a spot contract to buy the underlying. 4. You would take out a forward contract to buy the underlying.
A swap contract Select one: A. relates to the trading of an asset owned by one company for another owned by a second company. B. is an arrangement between two or more parties to exchange future cash flows. C. can be used to increase or decrease the ratio of fixed and variable interest costs in its cost structure. D. Both B and C are true.
[S1] The longer the time to expiration, the less valuable the option is. [S2] The more volatile the price of theunderlying asset, the less valuable the option is. a. Only S1 is true. b. Only S2 is true. c. Both are true. d. Both are false.
In a conventional interest rate swap agreement,the fixed-rate payer is attempting to transform the variable-rate nature of its liabilities into fixed-rate liabilities true or false
Which of the following is/are true about the current market value of a derivative instrument? On maturity, it coincides with the payoff It is always positive, so that when you buy a derivative, you always pay some amount At the time of establishing the position, market value can be positive, negative or zero Notional is positively related to the magnitude of the market value, unless the latter is zero None of the other choices

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