Which of the following is NOT a benefit of derivatives
Subject: Business / Finance
Question 1. Which of the following is NOT a benefit of derivatives? (Points : 1)
a. risk sharing
b. guaranteed minimum profit
d. information services
Question 2. 2. In derivative markets, trade takes place in (Points : 1)
a. assets such as bonds or common stock that derive their value from the value of the companies which issue them.
b. assets whose rates of returns must be derived from information published in financial tables.
c. assets that derive their value from underlying assets.
d. assets which are not allowed to be traded on organized exchanges.
Question 3. 3. If a corporation pays a dividend, which group receives priority in receiving the dividend? (Points : 1)
a. bond holders
b. holders of common stock
c. holders of preferred stock
d. dividends are evenly divided by holders of common and preferred stock
Question 4. 4. Speculators in derivatives markets (Points : 1)
a. reduce the efficiency of these markets.
b. are acting contrary to U.S. securities laws.
c. accept risk transferred to them by hedgers.
d. reduce the liquidity of these markets.
Question 5. 5. Using forward transactions allows (Points : 1)
a.holders of common stock to lock in future dividend payments.
b. the federal government to stabilize fluctuations in tax receipts.
c. corporations to reduce problems arising from future fluctuations in their dividend payments.
d. both buyers and sellers to reduce risks associated with price fluctuations.
Question 6. 6. If major traders believe the price of a stock should be higher than its current market price, (Points : 1)
a. they have an incentive to sell the stock.
b. their actions will result in the information they possess being incorporated into the price of the stock.
c. there is little they can do because government regulation precludes their acting on what they know.
d. they should petition the Securities and Exchange Commission to authorize an adjustment in the price of the stock.
Question 7. 7. The difference between a firm’s assets and its liabilities is known as: (Points : 1)
a. limited liability
Question 8. 8. Suppose you are a manager for a company that produces grape jelly. Which of the following is the best way for you to reduce your risk? (Points : 1)
a. acquire a derivative that increases in value if grape prices increase
b. acquire a derivative that increases in value if grape jelly prices increase
c. sell a derivative that increases in value if grape prices increase
d. sell a derivative that increases in value if grape jelly prices increase
Question 9. 9. According to the efficient markets hypothesis, who is most likely to benefit from frequently moving funds from one asset to another? (Points : 1)
a. your broker
b. small investors
c. big investors
d. only those who consistently beat the market
Question 10. 10. One implication of the efficient markets hypothesis is that investors should (Points : 1)
a. concentrate their investments in just a few well-chosen assets.
b. hold a diversified portfolio of assets.
c. buy stocks rather than bonds.
d. buy bonds rather than stocks.