Question

Which of the following is not true regarding derivatives? A. With the same expiration date, both...

Which of the following is not true regarding derivatives?

A. With the same expiration date, both call and put prices increase with higher strike prices.

B. An European put allows the buyer to sell the underlying asset only on the expiration date.

C. Most forward contracts are not tradable while futures contracts are tradable.

D. Usually a swap contract is simply a series of forward contracts.

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Answer #1

The incorrect statement is

A. With the same expiration date, both call and put prices increase with higher strike prices.

Call option is the right to buy while put option is the right to sell

Hence, value of call option decreases with higher strike price while the value of put increases.

Hence, statement A is false

A European option can only be exercised at the expiry date while american option can be exercised before also.

Forward contracts cannot be traded in market while future contracts can

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