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A put option gives the owner ____.
A) the right to sell the underlying security
B) the obligation to sell the underlying security
C) the right to buy the underlying security
D) the obligation to buy the underlying security
Answer: A
Diff: 2 Type: MC Page Ref: 336
Skill: Recall
Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
manage interest-rate and foreign-exchange risk
A put option gives the seller ____.
A) the right to sell the underlying security
B) the obligation to sell the underlying security
C) the right to buy the underlying security
D) the obligation to buy the underlying security
Answer: D
Diff: 2 Type: MC Page Ref: 336
Skill: Recall
Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
manage interest-rate and foreign-exchange risk
The main disadvantage of futures contracts as compared to options on futures contracts is
that futures ____.
A) remove the possibility of gains
B) increase the transactions cost
C) are not as effective a hedge
D) do not remove the possibility of losses
Answer: A
Diff: 3 Type: MC Page Ref: 339
Skill: Applied
Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
manage interest-rate and foreign-exchange risk
All other things held constant, premiums on put options will increase when the ____.
A) exercise price falls
B) volatility of the underlying asset falls
C) term to maturity increases
D) term to maturity decreases
Answer: C
Diff: 3 Type: MC Page Ref: 336
Skill: Recall
Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
manage interest-rate and foreign-exchange risk