Some forward contracts are termed cash settlement contracts. This means:
A. either the long or the short in the forward contract will make a cash payment at contract expiration and the asset is not delivered.
B. at settlement, the long purchases the asset from the short for cash.
C. at contract expiration, the long can buy the asset from the short or pay the difference between the market price of the asset and the contract price.
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An investor can exit a forward position prior to contract expiration by all of the following methods EXCEPT:
A. entering into an offsetting contract with the original counterparty or a second (different) counterparty.
B. exercising the early delivery option.
C. making a cash payment or accepting a cash payment by agreement with the original counterparty.
The daily process of adjusting the margin in a futures account is called:
A. initial margin.
B. variation margin.
C. marking to market.
The motivation for entering into a swap agreement is that:
A. it provides firms that face financial risks with a flexible way to manage that risk.
B. it provides firms that face financial risks with a fixed way to manage that risk.
C. it gives you an ability to swap amongst a diverse range of products.
Concerning efficient financial( including derivative) markets, the most appropriate description is that
A. it is often possible to earn abnormal returns.
B. the law of one price holds only in the academic literature.
C. arbitrage opportunities rarely exist and are quickly eliminated.