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Suppose you are convinced that the value of the Canadian dollar will rise relative to the U. dollar. An investor might make a profit based on this...

Suppose you are convinced that the value of the Canadian dollar will rise relative to the U.S. dollar. An investor might make a profit based on this conviction in all of the following ways, except:

Buy Canadian dollar futures contracts.

Buy Canadian dollars in the forward market.

Sell put contracts on the U.S. dollar.

Buy a call option on the Canadian dollar.

 

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Question 2

1 pts

Would derivative markets be better off if the only people buying and selling derivative contracts were hedgers?

No, as in all markets, at least two parties are required for each transaction, and speculators help provide liquidity and efficiency in financial markets.

Yes, with only hedgers in the market, the number of investments would increase, thus increasing the flow of funds in the financial system.

Yes, because speculators may cause artificially high asset prices, the market is more efficient with hedgers only.

Uncertain, it depends on how much risk hedgers are willing to assume.

 

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Question 3

1 pts

Suppose you are a corn farmer. What risk do you face from price fluctuations?

Stable corn prices.

Falling corn prices.

Rising corn prices.

You face no risk from price fluctuations.

 

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Question 4

1 pts

How might an investor use mean reversion to earn above-average returns?

By selling stocks whose returns have recently been high.

By buying stocks whose returns have recently been low.

By buying only blue-chip stocks.

A and B only.

 

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Question 5

1 pts

Which of the following does not describe derivatives?

They are assets that derive their economic value from an underlying asset, such as a stock or bond.

Insurance is required when purchasing derivative securities.

These financial instruments are often used to hedge against risk.

These financial instruments are often used to speculate.

 

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Question 6

1 pts

An option's intrinsic value is the:

price at which the buyer of an option has the right to buy or sell the underlying asset.

price of the option.

price of the underlying asset of the option.

payoff to the buyer of the option from exercising it immediately.

 

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Question 7

1 pts

In what ways are dividends similar to and different from coupons on bonds?

Dividends are typically associated with equity investments, and coupons are associated with debt investments.

Dividends and coupons are forms of payments to investors.

Dividends and coupons are payments to stockholders based on a firm's profits.

A and B only.

 

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Question 8

1 pts

Why would an increase in inflation cause the value of your fixed-rate loans to decline?

Demand for fixed-rate loans will be higher, reducing the value of the asset.

The real return of fixed-rate loans will be lower.

The real return of fixed-rate loans will be higher.

Supply of fixed-rate loans will be lower, reducing the value of the asset.

 

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Question 9

1 pts

How might an investor use excess volatility to earn above-average returns?

By selling stocks when they are above their fundamental values.

By buying stocks when they are below their fundamental values.

By repeatedly buying and selling stocks in a short period of time.

A and B only.

 

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Question 10

1 pts

What is behavioral finance, and how is it related to behavioral economics?

Behavioral finance studies how people make choices in the markets by applying concepts from behavioral economics.

Behavioral finance studies the rational choices of people in the markets, while behavioral economics studies the choices that do not appear to be economically rational.

Behavioral finance studies how people make choices in the markets; however, it is unrelated to behavioral economics.

Both behavioral finance and behavioral economics study how investors make rational decisions, further proving efficient-market theory.

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