Question

1- The advantage of forward contracts over futures contracts is that they:

A)are negotiated in the over-the-counter market B)are standardized

c)is more liquid

D)have lower default risk

2)The current stock price of Boeing is selling for $75. If the exercise price of a call option is S70, the call option:

A)should not be exercised .

B)is at the money

C)is out of the money .

D)is in the money

Answer 1

1.

Particular	Forward Contract	Future Contract
Definition	Forward contract is generally agreement between two parties to buy or sell the assets of any kind at future agreed time at specified price.	A futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.
Trading	Forward contracts are traded over the counter.	Future Contract Traded in Exchange.
Liquidity	Forward Contract have less liquidity compare to future contact.	Future contract have more liquidity.
Default Risk	Forward Contract have More Default Risk compare to future contact	Future Contact have lower Default Risk.

Correct answer is ,The advantage of forward contracts over futures contracts is that they:

A) are negotiated in the over-the-counter marke.

2. Current Stock Price $75

   excercise price of a call option is S70

   Since Spot Price is more then excercise

Option will excercised.

    Position of Option is In the money

Benefit to Buyer = Spot Price - excercise price

   Benefit to Buyer = $ 75      -     $ 70

Benefit to Buyer = $ 5

Correct answer is, The current stock price of Boeing is selling for $75. If the exercise price of a call option is S70, the call option: D)is in the money.