Question

13. If you owned the stock of a company that had also issued a warrant on its stock, how could you use the warrant to limit your risk in the stock?

    A. Buy the warrant and write a put on the stock. B. Sell the warrant short.
    C. Buy a put on the stock.
    D. Buy a put on the stock, and buy the warrant.

14. Suppose that you’re a corn farmer preparing to plant. You want to reduce the risk that corn prices will drop below $2.20 per bushel next September when you harvest. What is the best strategy to reduce your risk?

    1. Enter a long position in corn futures to accept in September to enhance your profit if corn prices rise.

    2. Enter a futures contract to deliver September corn at a price under $2.20.

    3. Enter a long position in corn for futures contracts to accept corn in July.

    4. Enter a futures contract to deliver September corn at a price above $2.20.

15. Which of the following is most likely to use currency futures to reduce risk?

    A. Foreign currency speculators
    B. Corporations that accept and make payments in foreign currencies
    C. Households located near international borders
    D. Wheat farmers who sell to U.S. exporters developing markets in China

16. Which of the following investors would reduce risk by shorting municipal bonds with futures?

    A. Someone who owns a large portfolio of municipal bonds
    B. An investor who has entered a contract to deliver municipal bonds
    C. Someone who has entered a futures contract to accept Treasury notes D. A city that has issued municipal bonds

17. If you were CFO of a U.S.-based international corporation with significant operations in Switzerland, which of the following would be the best way to reduce currency risk through derivatives?

    1. Enter a short position in the Swiss franc.

    2. Purchase Swiss francs and invest them in Swiss certificates of deposit.

    3. Enter a swap agreement so that U.S. operating expenses are paid on behalf of a

       corporation based in Switzerland.

    4. Enter a swap agreement so that Swiss operating expenses are paid by a corporation

       based in Switzerland.

18. A. Inflation declines during the term of the contract.
    B. Spot price declines because of excess volume in the commodity. C. The broker increases the maintenance margin.
    D. Interest rates rise faster than expected.

    20. Which of the following events would increase a futures price?

Answer 1

1. If you owned the stock of a company that had also issued a warrant on its stock, how could you use the warrant to limit your risk in the stock?
B. Sell the warrant short

2. Suppose that you’re a corn farmer preparing to plant. You want to reduce the risk that corn prices will drop below $2.20 per bushel next September when you harvest. What is the best strategy to reduce your risk?
D. Enter a futures contract to deliver September corn at a price above $2.20

3. Which of the following is most likely to use currency futures to reduce risk?
D. Wheat farmers who sell to U.S. exporters developing markets in China

4. Which of the following investors would reduce risk by shorting municipal bonds with futures?
A. Someone who owns a large portfolio of municipal bonds

5. If you were CFO of a U.S.-based international corporation with significant operations in Switzerland, which of the following would be the best way to reduce currency risk through derivatives?
C. Enter a swap agreement so that U.S. operating expenses are paid on behalf of a corporation based in Switzerland.

6. Which of the following events would increase a futures price?
D. Interest rates rise faster than expected.