When the law of one price is violated in that the same good is selling for two different prices, an opportunity for what type of transaction is created?

When the law of one price is violated in that the same good is selling for two different prices, an opportunity for what type of transaction is created?

a. return-to-equilibrium transaction
b. risk-assuming transaction
c. speculative transaction
d. arbitrage transaction
e. none of the above

Answer: D

The expected return minus the risk-free rate is called

The expected return minus the risk-free rate is called 

a. the risk premium
b. the percentage return
c. the asset's beta
d. the return premium
e. none of the above

Answer: A

In which one of the following types of contract between a seller and a buyer does the seller agree to sell a specified asset to the buyer today and then buy it back at a specified time in the future at an agreed future price.

In which one of the following types of contract between a seller and a buyer does the seller agree to sell a specified asset to the buyer today and then buy it back at a specified time in the future at an agreed future price. 

a. repurchase agreement
b. short selling
c. swap
d. call
e. none of the above

Answer: A

The process of selling borrowed assets with the intention of buying them back at a later date and lower price is referred to as

The process of selling borrowed assets with the intention of buying them back at a later date and lower price is referred to as 

a. longing an asset
b. asset flipping
c. shorting
d. anticipated price fall arbitrage
e. none of the above

Answer: C

The process of creating new financial products is sometimes referred to as

The process of creating new financial products is sometimes referred to as

a. financial frontiering
b. financial engineering
c. financial modeling
d. financial innovation
e. none of the above

Answer: B

Which of the following contracts obligates a buyer to buy or sell something at a later date?

Which of the following contracts obligates a buyer to buy or sell something at a later date?

a. call
b. futures
c. cap
d. put
e. swaption

Answer: B

Which of the following statements is not true about the law of one price

Which of the following statements is not true about the law of one price

a. investors prefer more wealth to less
b. investments that offer the same return in all states must pay the risk-free rate
c. if two investment opportunities offer equivalent outcomes, they must have the same price
d. investors are risk neutral
e. none of the above

Answer: D

Investors who do not consider risk in their decisions are said to be

Investors who do not consider risk in their decisions are said to be

a. speculating
b. short selling
c. risk neutral
d. traders
e. none of the above

Answer: C

Which of the following markets is/are said to provide price discovery?

Which of the following markets is/are said to provide price discovery?

a. futures
b. forwards
c. options
d. a and b
e. b and c

Answer: D

Which of the following trade on organized exchanges?

Which of the following trade on organized exchanges?

a. caps
b. forwards
c. options
d. swaps
e. none of the above

Answer: C

A market in which the price equals the true economic value

A market in which the price equals the true economic value

a. is risk-free
b. has high expected returns
c. is organized
d. is efficient
e. all of the above

Answer: D

Options on futures are also known as

Options on futures are also known as

a. spot options
b. commodity options
c. exchange options
d. security options
e. none of the above

Answer: B

A forward contract has which of the following characteristics?

A forward contract has which of the following characteristics?

a. has a buyer and a seller
b. trades on an organized exchange
c. has a daily settlement
d. gives the right but not the obligation to buy
e. all of the above

Answer: A

Which of the following are advantages of derivatives?

Which of the following are advantages of derivatives?

a. lower transaction costs than securities and commodities
b. reveal information about expected prices and volatility
c. help control risk
d. make spot prices stay closer to their true values
e. all of the above

Answer: E

A transaction in which an investor holds a position in the spot market and sells a futures contract or writes a call is

A transaction in which an investor holds a position in the spot market and sells a futures contract or writes a call is

a. a gamble
b. a speculative position
c. a hedge
d. a risk-free transaction
e. none of the above

Answer: C

The positive relationship between risk and return is called

The positive relationship between risk and return is called

a. expected return
b. market efficiency
c. the law of one price
d. arbitrage
e. none of the above

Answer: E

Which of the following instruments are contracts but are not securities

Which of the following instruments are contracts but are not securities

a. stocks
b. options
c. swaps
d. a and b
e. b and c

Answer: E

A call option gives the holder

A call option gives the holder

a. the right to buy something
b. the right to sell something
c. the obligation to buy something
d. the obligation to sell something
e. none of the above

Answer: A

Cash markets are also known as

Cash markets are also known as

a. speculative markets
b. spot markets
c. derivative markets
d. dollar markets
e. none of the above

Answer: B

The market value of the derivatives contracts worldwide totals

The market value of the derivatives contracts worldwide totals 

a. less than a trillion dollars
b. in the hundreds of trillion dollars
c. over a trillion dollars but less than a hundred trillion
d. over quadrillion dollars
e. none of the above

Answer: C