Reference no: EM132789332
Tom plans to buy a pencil at the stationery store. Tom and stationery store owner Jack entered into following contract:?After the first month, Tom buys a pencil for $1,000 from Jack.?
- After the first month, the demand of pencil has fallen because of the increase in demand of the mechanical pencil, so the pencil price dropped to $500, Tom's loss on the contract becoming $500. (If Tom had not contracted with Jack, He could have purchased the pencil for $500. But Tom has to buy a pencil for $1,000 until the expiration date because of his contract with Jack.)
- On the contrary, suppose that many students purchased the pencil for a month because a famous entertainer encouraged them to use the pencil, and the pencil price rose to $2,000, and Tom's gain on the contract is $1,000. (If Tom had not contracted with Jack, he would have purchased the pencil for $2,000. But Tom can buy a pencil for $1,000 until the expiration date because of his contract with Jack.)
Problem 1. This type of the transaction is called : Swap.
A. True
B. False
Problem 2. This type of the transaction is called 'outside market' and have a default risk.
A. True
B. False
Problem 3. Tom's position is called a short position, and Jack's position is called a long position.
A. True
B. False
Problem 4. This type of the contract always no require initial contract price, because this contract is always mutually contracted at-the-money condition.
A. True
B. False
Problem 5. This type of the contract has effective portion only. Ineffective portion does not exist.
A. True
B. False
Problem 6. If we illustrate above-mentioned transaction by graph, suppose that x-axis is price of a pencil, y-axis is gain or loss, and a-value is price of contracted price. (1) Tom's purchase gain or loss equation is 'y=x-a', and graph shape is 'right bottom'. (2) Jack's sales gain or loss equation is 'y=a-x', and graph shape is 'right top'
A. True
B. False
Problem 7. Call option issuer has an opportunity of the hedging.
A. True
B. False
Problem 8. When A Corporation and B Corporation contract the option contract, if A is call option holder, counter party B is naturally put option holder.
A. True
B. False
Problem 9. The definition of derivative that ASC 815 enacted is not based on the financial engineering concept.
A. True
B. False