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Q. Which of the following contracts trade only on exchanges? Options Futures Forwards Q. Under a...

Q. Which of the following contracts trade only on exchanges?

  1. Options
  2. Futures
  3. Forwards

Q. Under a floating exchange rate system, if a country has a persistent capital and financial account deficit it most likely indicates that:

  1. it runs a trade deficit.
  2. it is a net lender to the rest of the world.
  3. the domestic currency should depreciate.
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Homework Answers

Answer #1

Answer:- Futures

Explanation:- Futures contracts are exchange traded derivative securities. While forwards contracts trade only at the over-the-counter (OTC) derivatives markets. Options contracts are traded in both exchanges and over-the-counter markets. So, Futures contracts trade only on exchanges.

Answer:- the domestic currency should depreciate

Explanation:- If a country has a financial account deficit, the domestic currency should depreciate with respect to the foreign currencies. This will make the price of country’s exports in overseas markets to fall which will make exports more competitive. And the price of imports in the country to rise which will make imports more costlier. So, exporting more and importing less will help in reducing this deficit.

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