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Unformatted text preview: be varied by agreement between the issuer and holder
corresponds to the meaning in A. Alternatives B, C and D refer to changes that might be negotiated between two
D) the term to maturity of the instrument contracts that are
parties. (This flexibility may be present in the context of cannot be extended private agreements between two
parties and cannot be transferred to anyone else. In contrast, negotiable (or marketable) instruments have terms
that are (i) clearly stated at the time they are issued and (ii) not easily changed at any later time.) See page 13. 8
Which of the following statements about derivatives contracts is correct?
A) futures contracts are standardised and traded on an exchange
forward contracts differ from futures contracts only in that forward contracts are standardised
C) an option contract gives the buyer both rights and obligations
Feedback: As stated in A, futures contracts are standardised and traded on an organised exchange but the
s tatements in B, CD) a currency swap errors. Specifically, forward contracts are not standardised; an option gives
and D all contain fixes the interest rate for a loan denominated in a foreign currency
the buyer rights but not obligations and a currency swap fixes an exchange rate rather than an interest rate. See
page 14. 9
Which of the following statements is correct?
A) secondary markets in financial instruments are irrelevant to the companies that issued those
instruments in the primary market
secondary markets are directly involved in channelling funds from investors to borrowers
C) secondary markets do encourage both savings and investment
Feedback: Funds areprimary andnot secondary markets lead to greater investment by the issuers thefinancial assets
raised but new securities are issued in the primary market. However, of existence of
s econdary markets in which investors can sell those securities again if their needs change does encourage
them to invest through primary markets so C is the correct answer. See page 16. 10
Secondary market transactions in shares:
A) involve additional shares being issued by companies
B) allow companies to borrow more heavily
Feedback: A secondary market transaction is one where securities are bought and sold after their original
C) only involve t...
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This note was uploaded on 03/26/2012 for the course FIN 1612 at University of New South Wales.