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6. Which of the following statements is not true? A) A hog farmer’s decision to sell...

6. Which of the following statements is not true?

A) A hog farmer’s decision to sell hog futures is an example of short hedging to limit risk. B) Forward contracts are traded on an organized exchange, and futures contracts are traded on the OTC markets. C) A company that mines bauxite, an aluminum ore, decides to short aluminum futures. This is an example of cross-hedging. D) Marking-to-market refers to the daily settlement of obligations on future positions.

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Expert Solution

6. Which of the following statements is not true?

A) A hog farmer’s decision to sell hog futures is an example of short hedging to limit risk.

B) Forward contracts are traded on an organized exchange, and futures contracts are traded on the OTC markets.

C) A company that mines bauxite, an aluminum ore, decides to short aluminum futures. This is an example of cross-hedging.

D) Marking-to-market refers to the daily settlement of obligations on future positions.

Ans: B) Forward contracts are traded on an organized exchange, and futures contracts are traded on the OTC markets.

Explanation: Forward contracts are private and customize agreements which settles at the end of contract and it is traded Over-the-Counter Market. On the other hand, Future contracts includes standardized terms and conditions. It is traded on an Organized Exchange, where values of stocks and securities are settled on a day-to-day basis till the end of the agreement.

Hence the statement given in the question " Forward contracts are traded on an organized exchange, and futures contracts are traded on the OTC markets" is not true.

jeff jeffy answered 1 year ago
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