Question 1

Which of the following is an example of a call option?

Accepted Answer

A)The right to buy the stock at a fixed price until the expiration date is known as a call option. In a call option, the buyer believes the price of underlying stock will increase.
B)The right to buy the stock at a fixed price until the expiration date is known as a call option. In a call option, the buyer believes the price of underlying stock will increase.
C)The right to buy the stock at a fixed price until the expiration date is known as a call option. In a call option, the buyer believes the price of underlying stock will increase.
D)The right to buy the stock at a fixed price until the expiration date is known as a call option. In a call option, the buyer believes the price of underlying stock will increase.
E)The right to buy the stock at a fixed price until the expiration date is known as a call option. In a call option, the buyer believes the price of underlying stock will increase.

Question 2

James wants to buy some shares of JE Electricals.He instructs the broker to buy 1000 shares at the best possible price immediately.This is an example of a(n)________.

Accepted Answer

A)A market order instructs the broker to buy or sell securities at the best price that can be negotiated in the market. The given situation describes a market order.
B)A market order instructs the broker to buy or sell securities at the best price that can be negotiated in the market. The given situation describes a market order.
C)A market order instructs the broker to buy or sell securities at the best price that can be negotiated in the market. The given situation describes a market order.
D)A market order instructs the broker to buy or sell securities at the best price that can be negotiated in the market. The given situation describes a market order.
E)A market order instructs the broker to buy or sell securities at the best price that can be negotiated in the market. The given situation describes a market order.

Question 3

A bear market is characterized by ________.

Accepted Answer

A)A bear market is characterized by a long-term trend of falling stock prices.
B)A bear market is characterized by a long-term trend of falling stock prices.
C)A bear market is characterized by a long-term trend of falling stock prices.
D)A bear market is characterized by a long-term trend of falling stock prices.
E)A bear market is characterized by a long-term trend of falling stock prices.

Question 4

________ are contracts whose value is derived from some other entity.

Accepted Answer

A)Derivatives are contracts whose value is derived from some other entity (usually an asset of some kind, but not necessarily). It is used to hedge against or speculate on risk.
B)Derivatives are contracts whose value is derived from some other entity (usually an asset of some kind, but not necessarily). It is used to hedge against or speculate on risk.
C)Derivatives are contracts whose value is derived from some other entity (usually an asset of some kind, but not necessarily). It is used to hedge against or speculate on risk.
D)Derivatives are contracts whose value is derived from some other entity (usually an asset of some kind, but not necessarily). It is used to hedge against or speculate on risk.
E)Derivatives are contracts whose value is derived from some other entity (usually an asset of some kind, but not necessarily). It is used to hedge against or speculate on risk.

Question 5

A(n)________ is a contract to buy or sell a financial instrument for a set price at a later date.

Accepted Answer

A)Financial futures are contracts to buy or sell a financial instrument (such as stocks, Treasury bonds, and foreign currencies)for a set price at a future date.
B)Financial futures are contracts to buy or sell a financial instrument (such as stocks, Treasury bonds, and foreign currencies)for a set price at a future date.
C)Financial futures are contracts to buy or sell a financial instrument (such as stocks, Treasury bonds, and foreign currencies)for a set price at a future date.
D)Financial futures are contracts to buy or sell a financial instrument (such as stocks, Treasury bonds, and foreign currencies)for a set price at a future date.
E)Financial futures are contracts to buy or sell a financial instrument (such as stocks, Treasury bonds, and foreign currencies)for a set price at a future date.

Question 6

Arabex is a stock market in one of the developing countries.Most of the stocks listed in the market are increasing in value.Arabex is an example of a(n)________.

Accepted Answer

A)Bull market is a market situation in which most stocks are increasing in value. Arabex, as described here, is a bull market.
B)Bull market is a market situation in which most stocks are increasing in value. Arabex, as described here, is a bull market.
C)Bull market is a market situation in which most stocks are increasing in value. Arabex, as described here, is a bull market.
D)Bull market is a market situation in which most stocks are increasing in value. Arabex, as described here, is a bull market.
E)Bull market is a market situation in which most stocks are increasing in value. Arabex, as described here, is a bull market.

Question 7

You ask your broker to buy 500 shares of Microsoft,if it is available,at a price less than or equal to $26.This is an example of a ________ order.

Accepted Answer

A)Limit order is an order that stipulates the highest or lowest price at which the customer is willing to trade securities. The order described here specifies a limit of $26.
B)Limit order is an order that stipulates the highest or lowest price at which the customer is willing to trade securities. The order described here specifies a limit of $26.
C)Limit order is an order that stipulates the highest or lowest price at which the customer is willing to trade securities. The order described here specifies a limit of $26.
D)Limit order is an order that stipulates the highest or lowest price at which the customer is willing to trade securities. The order described here specifies a limit of $26.
E)Limit order is an order that stipulates the highest or lowest price at which the customer is willing to trade securities. The order described here specifies a limit of $26.

Question 8

Robex Retail forms a contract with one of its suppliers to buy specific amounts of agricultural produce at a later date.This contract is an example of a(n)________.

Accepted Answer

A)Commodities futures are contracts to buy or sell specific amounts of commodities for a set price at a future date. Agricultural produce is a commodity.
B)Commodities futures are contracts to buy or sell specific amounts of commodities for a set price at a future date. Agricultural produce is a commodity.
C)Commodities futures are contracts to buy or sell specific amounts of commodities for a set price at a future date. Agricultural produce is a commodity.
D)Commodities futures are contracts to buy or sell specific amounts of commodities for a set price at a future date. Agricultural produce is a commodity.
E)Commodities futures are contracts to buy or sell specific amounts of commodities for a set price at a future date. Agricultural produce is a commodity.

Question 9

Gordon Fiber is a firm that manufactures fiber products.The firm is facing a credit crunch and wants to liquidize the treasury bills and commercial papers they have.The firm can sell these at the ________ market.

Accepted Answer

A)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.
B)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.
C)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.
D)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.
E)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.

Question 10

A put option is purchased when the buyer believes that the ________.

Accepted Answer

A)The right to sell the stock at a fixed price until the expiration date is known as a put option. In a put option, the buyer believes the price of underlying stock will decline.
B)The right to sell the stock at a fixed price until the expiration date is known as a put option. In a put option, the buyer believes the price of underlying stock will decline.
C)The right to sell the stock at a fixed price until the expiration date is known as a put option. In a put option, the buyer believes the price of underlying stock will decline.
D)The right to sell the stock at a fixed price until the expiration date is known as a put option. In a put option, the buyer believes the price of underlying stock will decline.
E)The right to sell the stock at a fixed price until the expiration date is known as a put option. In a put option, the buyer believes the price of underlying stock will decline.

Question 11

Which of the following markets includes exchange trading and over-the-counter trading?

Accepted Answer

A)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives, at least currently). The derivatives market is as diverse as derivatives themselves.
B)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives, at least currently). The derivatives market is as diverse as derivatives themselves.
C)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives, at least currently). The derivatives market is as diverse as derivatives themselves.
D)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives, at least currently). The derivatives market is as diverse as derivatives themselves.
E)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives, at least currently). The derivatives market is as diverse as derivatives themselves.

Question 12

Which of the following statements is TRUE of bond markets?

Accepted Answer

A)Unlike the stock market, in which most buying and selling is coordinated by organizations, most trading in the bond market is over the counter, taking place outside organized exchanges.
B)Unlike the stock market, in which most buying and selling is coordinated by organizations, most trading in the bond market is over the counter, taking place outside organized exchanges.
C)Unlike the stock market, in which most buying and selling is coordinated by organizations, most trading in the bond market is over the counter, taking place outside organized exchanges.
D)Unlike the stock market, in which most buying and selling is coordinated by organizations, most trading in the bond market is over the counter, taking place outside organized exchanges.
E)Unlike the stock market, in which most buying and selling is coordinated by organizations, most trading in the bond market is over the counter, taking place outside organized exchanges.

Question 13

Stock exchanges are organizations that ________.

Accepted Answer

A)Organizations that facilitate the buying and selling of stock are known as stock exchanges. Some of these are actual physical facilities, whereas others are primarily computer networks.
B)Organizations that facilitate the buying and selling of stock are known as stock exchanges. Some of these are actual physical facilities, whereas others are primarily computer networks.
C)Organizations that facilitate the buying and selling of stock are known as stock exchanges. Some of these are actual physical facilities, whereas others are primarily computer networks.
D)Organizations that facilitate the buying and selling of stock are known as stock exchanges. Some of these are actual physical facilities, whereas others are primarily computer networks.
E)Organizations that facilitate the buying and selling of stock are known as stock exchanges. Some of these are actual physical facilities, whereas others are primarily computer networks.

Question 14

Credit derivatives are used to ________.

Accepted Answer

A)Credit derivatives are used to reduce a lender's exposure to credit risk. The most notable-and notorious-type of credit derivative is the credit default swap.
B)Credit derivatives are used to reduce a lender's exposure to credit risk. The most notable-and notorious-type of credit derivative is the credit default swap.
C)Credit derivatives are used to reduce a lender's exposure to credit risk. The most notable-and notorious-type of credit derivative is the credit default swap.
D)Credit derivatives are used to reduce a lender's exposure to credit risk. The most notable-and notorious-type of credit derivative is the credit default swap.
E)Credit derivatives are used to reduce a lender's exposure to credit risk. The most notable-and notorious-type of credit derivative is the credit default swap.

Question 15

You want to trade some of the futures that you have.Which of the following markets will facilitate such a trade?

Accepted Answer

A)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives). You can sell futures at the derivatives market.
B)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives). You can sell futures at the derivatives market.
C)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives). You can sell futures at the derivatives market.
D)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives). You can sell futures at the derivatives market.
E)Derivatives market is a market that includes exchange trading (for futures and some options)and over-the-counter trading (for all other derivatives). You can sell futures at the derivatives market.

Question 16

________ is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial papers.

Accepted Answer

A)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.
B)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.
C)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.
D)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.
E)The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.

Question 17

Currency futures are used to ________.

Accepted Answer

A)Currency futures are contracts to buy or sell amounts of specified currency at some future date. It is used by firms to hedge against exchange rate shifts that will affect them negatively.
B)Currency futures are contracts to buy or sell amounts of specified currency at some future date. It is used by firms to hedge against exchange rate shifts that will affect them negatively.
C)Currency futures are contracts to buy or sell amounts of specified currency at some future date. It is used by firms to hedge against exchange rate shifts that will affect them negatively.
D)Currency futures are contracts to buy or sell amounts of specified currency at some future date. It is used by firms to hedge against exchange rate shifts that will affect them negatively.
E)Currency futures are contracts to buy or sell amounts of specified currency at some future date. It is used by firms to hedge against exchange rate shifts that will affect them negatively.

Question 18

JSE Limited is a South African organization that facilitates exchange of equities between investors.JSE Limited is a(n)________.

Accepted Answer

A)Organizations that facilitate the buying and selling of stock are known as stock exchanges. JSE Limited, as described here, is a stock exchange.
B)Organizations that facilitate the buying and selling of stock are known as stock exchanges. JSE Limited, as described here, is a stock exchange.
C)Organizations that facilitate the buying and selling of stock are known as stock exchanges. JSE Limited, as described here, is a stock exchange.
D)Organizations that facilitate the buying and selling of stock are known as stock exchanges. JSE Limited, as described here, is a stock exchange.
E)Organizations that facilitate the buying and selling of stock are known as stock exchanges. JSE Limited, as described here, is a stock exchange.

Question 19

A(n)________ is the purchased right,but not the obligation,to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period.

Accepted Answer

A)An option is the purchased right-but not the obligation-to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period. Investors who trade options are betting that the price of the stock will either rise or decline.
B)An option is the purchased right-but not the obligation-to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period. Investors who trade options are betting that the price of the stock will either rise or decline.
C)An option is the purchased right-but not the obligation-to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period. Investors who trade options are betting that the price of the stock will either rise or decline.
D)An option is the purchased right-but not the obligation-to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period. Investors who trade options are betting that the price of the stock will either rise or decline.
E)An option is the purchased right-but not the obligation-to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period. Investors who trade options are betting that the price of the stock will either rise or decline.

Question 20

Which of the following is the basic premise of a derivative?

Accepted Answer

A)The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits.
B)The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits.
C)The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits.
D)The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits.
E)The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits.

Quiz 19: Financial Markets and Investment Strategies