1. Professional gamblers know that the odds are always in favor of the house (ca
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Question
1. Professional gamblers know that the odds are always in favor of the house (casinos). The fact that they gamble says they are
A. irrational.
B. risk-neutral.
C. risk-averse.
D. risk seekers.
2. The clearing corporation's main role in the futures market is to:
A. set the market price of the contract.
B. act as the counterparty to both sides of the transaction, thereby guaranteeing payment.
C. provide the underlying assets so the contracts can be created.
D. all of the above.
3. Marking to market is a process that:
A. involves a transfer of risk.
B. ensures that the buyers and sellers receive what the contract promises.
C. always requires the sellers of contracts to transfer funds to the buyers of contracts.
D. buyers and sellers can request for an additional fee when the contract is created.
4. Considering a put option, an increase in the strike price:
A. causes the intrinsic value of the option to decrease if it is above zero.
B. causes the intrinsic value of the option to increase if it is above zero.
C. causes the value of the option to decrease.
D. makes the option worthless.
5. The intrinsic value of a call option:
A. is the difference between the option price and the interest rate.
B. must be less than or equal to zero.
C. is the greater of zero or the difference between the price of the underlying asset and the strike price.
D. will be negative if the time value of the option is negative.
Explanation / Answer
1. Professional gamblers who have managed to tip the odds in their favor behave more like investors, shying away from risk unless the reward is sufficient to justify taking the chance.Therefore they are risk - averse.
2. An agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery and reporting trading data. Clearing houses act as third parties to all futures and options contracts- as a buyer to every clearing member seller and a seller to every clearing member buyer.
Thus, all the above are correct.
3. A measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of an institution's or company's current financial situation.
The accounting act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.
Therefore, Mark to Market is a process that involves a transfer of risk.
4. Intrinsic Value of a put option = Strike Price - Underlying Price
Therefore, increase in the strike price causes the intrinsic value of the option to increase.
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