Options, Futures, And Other Derivatives, Global Edition 11th Edition Test Bank

Hull: Options, Futures, and Other Derivatives, Eleventh Edition, Global Edition Chapter 1: Introduction Multiple Choice Test Bank: Questions with Answers 1. A one-year forward contract is an agreement where: A. One side has the right to buy an asset for a certain price in one years time. B. One side has the obligation to buy an asset for a certain price in one years time. C. One side has the obligation to buy an asset for a certain price at some time during the next year. D. One side has the obligation to buy an asset for the market price in one years time. Answer: B A one-year forward contract is an obligation to buy or sell in one years time for a predetermined price. By contrast, an option is the right to buy or sell. 2. Which of the following is NOT true? A. When a CBOE call option on IBM is exercised, IBM issues more stock. B. An American option can be exercised at any time during its life. C. A call option will always be exercised at maturity if the underlying asset price is greater than the strike price. D. A put option will always be exercised