Topic 6 - Derivatives

Topic 6 - Derivatives - BANK 1005 Derivatives and...

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BANK 1005 Derivatives and Securities Markets P a g e | 1 TOPIC 6 – DERIVATIVES MARKETS MULTIPLE CHOICE QUESTIONS 1. A disadvantage of using stock options to compensate managers is that A) It encourages mangers to undertake projects that will increase stock price B) It encourages managers to engage in empire building C) It can create an incentive for mangers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firms true prospects. D) All of the above. 2. With regard to a futures contract, the short position is held by the trader who: A) Bought the contract B) Commits to deliver the commodity on the delivery date C) Commits to purchase the commodity on the delivery date D) Plans to hold the contract open for the longest possible time period 3. A call option allows the buyer to A) Sell the underlying asset at the exercise price on or before the expiration date. B) Buy the underlying asset at the exercise price on or before the expiration date. C) Sell the option in the open market prior to expiration. D) B
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This note was uploaded on 10/19/2011 for the course BANK 1005 taught by Professor Hb during the Three '09 term at South Australia.

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Topic 6 - Derivatives - BANK 1005 Derivatives and...

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