Derivatives Markets 3rd Edition Test Bank

1 Copyright 2013 Pearson Education, Inc. Derivatives Markets, 3e (McDonald) Chapter 1 Introduction to Derivatives 1.1 Multiple Choice 1) Which of the following is not a derivative instrument? A) Contract to sell corn B) Option agreement to buy land C) Installment sales agreement D) Mortgage backed security Answer: C 2) Who from the following list would be considered a speculator by entering into a futures or options contract on commodities? A) Farmer B) Corn delivery truck driver C) Food manufacturer D) None of the above Answer: B 3) A mutual fund is engaged in the short term and temporary purchase of index futures, for purposes of minimizing its cash exposures. Which "use" most closely explains their actions? A) Risk management B) Speculation C) Reduced transaction costs D) Regulatory arbitrage Answer: C 4) During the growing season, a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a(n): A) Hedger B) Speculator C) Arbitrager D) None of the above Answer: B 5) All of the following are financially engineered products, except: A) Mortgage B) Mortgage backed security C) Interest only D)