Speculation in futures markets is pure gambling. It is not in the public interest to allow speculators to trade on a futures exchange. True False Explain. | Homework.Study.com (2024)

Get access to this video and our entire Q&A library

• The volatility of futures price changes over the hedging period. True or False?
• Foreign exchange rates, like stock prices, should follow a random walk because changes in the exchange rate are unpredictable. Is this statement true or false?
• If interest rates rise, causing the value of the bonds to be less at the time of sale, the corresponding futures hedge will show a profit. True False
• Investors demand higher expected rates of return from stocks with returns that are very sensitive to fluctuations in the stock market. True or false? Explain.
• Investors demand higher expected rates of return from stocks with returns that are highly very sensitive to fluctuations in the stock market from stocks. True or false? Explain.
• In general, when speculating on exchange rate movements, the speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate. True or false?
• It is often argued that forward exchange rates should be unbiased predictors of future spot exchange rates if the foreign exchange market is efficient. True False Explain.
• A covered interest arbitrage opportunity will be eliminated by changes in the spot exchange rate as well as changes in the forward rate. True False
• State True or False: Assuming all else is equal, long-term securities are exposed to higher interest rate risk than short-term securities.
• State true or false and justify your answer: Money markets refer to those markets dealing with short-term securities having a life of one year or less.
• Except for Treasury bills, money market securities are not free of default risk. a. True b. False
• Assuming all else is equal, long-term securities are exposed to higher interest rate risk than short-term securities. a. True b. False
• Investors demand higher expected rates of return from stocks with returns that are highly exposed to macroeconomic changes. True or false? Explain.
• Long-term forward contracts are a possible way to hedge the distant sale of fixed assets in foreign countries, but they may not be available for many emerging market currencies. True or false?
• The present value of perpetuity is unaffected by changes in market interest rate. True or False?
• It is often argued that forward exchange rates should be unbiased predictors of future spot exchange rates if the foreign exchange market is efficient. Is this true or false?
• True or false? Bond prices are inversely related to interest rates and are not directly influenced by stock market conditions.
• Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices are more sensitive to interest rate changes than are long-term bond prices. Is this statement true or false? Explain.
• True or False: As market interest rates rise, the value of bonds rise as well.
• The price of a forward contract on a foreign currency is nondecreasing in its maturity date. a. Always true b. Always false c. Sometimes true and sometimes false
• Possible sources of market or non-diversifiable risk include Inflation and commodity price changes, changes in currency exchange rates, and fluctuations in interest rates. True or False?
• Is the following statement true or false: Short-term securities have a high interest-rate risk.
• The pure expectations theory assumes that investors do not consider long-term bonds to be riskier than short-term bonds. True or False?
• State true or false and justify your answer: Markets are efficient when prices adjust rapidly to new information, continuous markets exist and large dollar trades can be absorbed without large price movements.
• A forward exchange agreement between currencies states the rate of exchange at which a foreign currency will be bought forward or sold forward at a specific date in the future. True or False?
• A term associated with future value is "compounding"; a term associated with present value is "discounting". a. True b. False
• Foreign exchange rate exposure is the possibility that a firm will gain or lose because of a change in the foreign exchange rate. a. True b. False
• The best time to get an ARM is when the market rates of interest are high. True or false?
• Short-run pressures on market exchange rates result mainly from gradual changes in flows of international trade in goods and services. True False Why?
• State true or false and justify your answer: Money markets refer to markets where excess corporate cash is exchanged for foreign currencies that can earn a higher return than domestic money.
• Expected foreign exchange gains and losses are determined by the amount of foreign exchange rate exposure times the change in the future spot rate. a. True b. False
• True or False: If the Federal Reserve sells more Treasury securities, overall interest rates go up.
• Determine whether the following statement is true or false: Over the period from late 2008 through 2012, the bond market outperformed the stock market.
• True/False: The "comparative advantage" argument for the popularity of interest rate swaps is based on the assumption that poorly rated firms may be pushed to borrowing in the floating rate market while their first choice is fixed.
• As interest rates fall, the prices of bonds decline. True or false?
• Short-term interest rates are generally lower than long-term interest rates. A. True B. False
• For a free-risk investment, the opportunity cost of capital will generally be more than the interest rate offered by U.S. Treasury securities with a similar term. a. True b. False
• Purchasing long-term bonds reduce an investor's interest rate risk. True or False?
• Bonds with higher liquidity will demand higher interest rates in the market since they can be easily converted into cash on short notice at or near the fair market value for that bond. A) True B) False
• Is the following statement true or false? Explain your answer. The pound is expected to decrease in volatility. All else being equal, pound dealers should narrow their pound bid-ask spread as a result
• The forward exchange rate quoted today should be equal to the spot rate in the future. a. True b. False
• State whether this statement is true or false and explain your answer: The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term rates, so short-term bond pr
• True or False: During recessions, short-term interest rates decline more sharply than long-term interest rates.
• Market risk premium is defined as the difference between the market rate of return and the return on risk-free Treasury bills. a. True b. False
• Which of the following statements concerning futures markets is false? a. Futures markets allow investors to manage risk. b. Futures markets can be used to hedge against changing commodity prices. c. Interest rate futures can be used to hedge against the
• True or false? Reinvestment rate risk is worse from an investor's standpoint than interest rate risk if the investor has a short investment time horizon.
• A safe dollar is always worth less than a risky dollar because the rate of return on a safe investment is generally low and the rate of return on a risky investment is generally high. a. True b. False
• Callable bonds are more likely to be called if interest rates have increased since the issuance of the bonds. a. True b. False
• As the price of stock rises, the probability a convertible bond will be called declines. True or False
• Expected future value of a currency is reflected in its spot rate. A. True B. False
• True or False: Actions that lower short-term interest rates will always lower long-term interest rates.
• By lowering the reserve requirement, the Federal Reserve tries to make more money available for loans and stimulate the economy. a. True b. False
• True or False: If the Federal Reserve sells more Treasury securities, money supply goes up.
• If all securities are fairly priced, all must offer equal expected rates of return. True or false?
• True or false? If you think that rates will fall in the future, you should buy a long-term CD to lock in your rate now.
• In interest rate swaps, two counter parties make a contractual agreement to exchange cash flows at periodic intervals. True or False? Explain.
• The price sensitivity of a bond to a given change in interest rates is generally greater the longer the bond's remaining maturity. a. True b. False
• In case of normal swings in the risk-free rate, option prices are not very sensitive to changes in the risk-free rate. a. True b. False
• The floor value of a bond can change if market interest rates for competitive bonds change. a) True b) False
• Statement true or False. The present value of an investment increases as the opportunity cost rate (interest rate) increases. (a) True (b) False.
• The spot and forward exchange rates are constantly in the state of equilibrium described by interest rate parity. True or False?
• Generally, once a convertible bond trades at a certain premium to its intrinsic value, or at a certain multiple of its conversion price, the bond must be converted into common stock. a. True. b. False.
• In efficient capital markets, security prices change in a random fashion. a. True b. False
• Is the given statement true, false, or uncertain? Why? Under the expectations hypothesis, if the yield curve is upward-sloping, the market must expect an increase in short-term interest rates.
• The key factor attracting both depositors and borrowers to the Eurocurrency loan market is the narrow interest rate spread within that market. a. True b. False
• 1. A change in expected inflation affects both the supply and demand for bonds. True/False 2. A change in the interest rate does not shift the demand for bonds. True/False 3. An increase in the expect
• The issuer will exercise the call option only when the prevailing market rate exceeds the coupon rate of the bond. True False
• If the average annual rate of return for common stocks is 12%, and for treasury bills it is 4.0%, the market risk premium is 8%. True False
• True or false? Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably.
• Inflation is always and everywhere a monetary phenomenon, but deflation is not. True False Explain.
• The optimal hedge ratio is less than one if the volatility of spot price hanges is less IIL. True or False?
• No principal is exchanged in interest rate swaps. a. TRUE b. FALSE
• True or false? The internal rate of return is highly dependent upon the current interest rates offered in the marketplace.
• QUESTION 11 Due to their high risk, junk bonds typically sell at a discount A. True B. False QUESTION 12 Due to their high quality, investment grade bonds typically sell at a premium A. True B. F
• For an investment in a foreign-currency-denominated financial asset, part of the return comes from the asset itself and part from the foreign currency. True False Explain.
• True or False: Assuming all else is equal, the shorter a bond's maturity, the more its price changes in response to a given change in interest rates.
• True or False: When the Fed increases the money supply, short-term interest rates tend to decline.
• Yield to maturity is equivalent to the market rate of interest. True or false?
• In markets with more cap rate volatility, construction occurs less frequently and with more delays. A. True. B. False.
• Determine whether the following statement is true or false: Even when the yield curve is upward-sloping, investors might rationally stay away from long-term bonds.
• One of the criticisms against the International Fisher Effect is its unrealistic assumption that nominal interest rates between nations remain constant. True or False? Explain.
• If inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury yield curve is downward sloping. (Assume MRP = 0.) True False
• If inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury yield curve is downward sloping (Assume MRP = 0). True or False? Explain.
• If inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury yield curve is downward sloping (Assume MRP = 0). True or false?
• True or False: The interest rate a bond pays changes when interest rates or the price of the bond changes.
• When interest rates increase, the price of a bond decreases. a. True b. False
• If the risk-free interest rate in the United States is 1% and the risk-free interest rate in Japan is 5% then an investor wishing to maximize wealth should invest in Japan. True False Explain.
• Foreign bonds are issued by a foreign government or a foreign corporation. An additional risk exists when bonds are denominated in a currency other than that of the investor's home currency. True or false? a. True b. False
• All financial managers and economists believe that long-run historical returns are the best available measure of future returns. a. True b. False
• The Federal Reserve has the power to fix the min rate of interest that commercial banks may pay on savings account, true or false?
• Swaps are financial contracts between parties to exchange cash flows at specified times and are based on an underlying asset's value. True or False: Because swaps are private agreements between parties, they can be highly customized. A. True B. False
• True or false? In general, the price of gold is unaffected by political upheavals.
• Briefly explain whether each of the following statements is true or false: a. The higher the price of bonds, the greater the quantity of bonds demanded. b. The lower the price of bonds, the smaller the quantity of bonds supplied. c. As the wealth of in
• If the market interest rate remains at 5% for the next 29 years, and if Leggio's credit rating remains constant, then the price of its bonds will decrease gradually over time and be exactly $1,000 at maturity. True or False?
• Identify whether the following statement is true or false. If inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury yield curve is downward sloping. (Assume MRP 0.)
• Prime rate is conventionally more than 6% above fed funds rate. True or False?
• FASB-52 uses the all current rate for translating foreign exchange gains and losses. a. True b. False
• Say True or False a) Issuing new short-term bonds to finance an expansion is an example of spontaneous financing. b) Financial forecasting is the process of attempting to estimate a firm's future fin
• State True or False and justify your answer: A sharp fall in the price of gasoline would be unlikely to last very long; after all, the fall in price would lead to an increase in demand, and this increase in demand would then cause the price to rise.
• A purchaser of a currency put option buys the right to sell a specific currency at a specific price within a specific period of time. a. True b. False