Question

14.A hedger in the financial futures market:
Select one:
a. either buys or sells future contracts in the expectation of earning a high return.
b. only sells futures contracts.
c. only buys futures contracts.
d. aims to reduce their price risk.

13.Which of the following statements is true?
Select one:
a. Corporations typically reinvest none of their earnings to enhance future earnings.
b. The only cash flows that an investor will receive until he or she sells their shares will be the dividends.
c. A firm’s residual earnings technically belong to the preferred shareholders.
d. Corporations generally pay all their earnings as dividends.

12.A repurchase agreement is like a secured loan because:
Select one:
a. the Reserve Bank of Australia is the guarantor of the repo.
b. it is backed by the real estate property of the borrower.
c. it involves a commercial bank and the Reserve Bank of Australia.
d. it involves a collateral, which is the underlying security in the repo.

Answer 1

(14) A hedger generally takes short position or long position in order safeguard his position against the price risk in the future.

Hence hedgers aims to reduce their price risk and correct option is d.

(13) From the given options " The only cash flows that an investor will receive until he or she sells the shares is the dividend. Hence correct option is b.

(12) A repurchase agreement is the short term secured loan backed by the collateral of underlying asset in repo.

Hence option d is the correct answer.