Final Exam II

Because futures gains arrive daily, a long futures holder benefits relative to a long forward when underlying prices ________.

Rise steadily

Daily resets of SOFR versus semiannual payments mainly affect ________.

Timing of cash flow certainty for swap parties

Commodity swaps let firms lock in which variable?

Fixed commodity price

A long forward position obligates the holder to do what on the forward date?

Buy the underlying

Exercising an option means ________.

Using the right to buy or sell the underlying

An agreement to exchange cash flows over time is called a ________.

Swap

Daily settlement of futures gains and losses primarily reduces ________.

Credit exposure between counterparties

Variation margin in a bilateral swap agreement ________.

Covers current mark-to-market exposure

If spot price at expiry exceeds the forward price, the long forward’s payoff is ________.

Positive and equals contract size × price difference

The breakeven price for a long call equals ________.

Strike price + premium

Compared with futures, swaps are distinguished by ________.

Multiple cash flow exchanges instead of one