If a Financial Manager Earning Interest on a Future Date

question 18

Multiple Choice

If a financial manager earning interest on a future date were to buy Futures and interest rates end up going down, the position outcome would be:

• A) Futures price falls; short earns a profit.
• B) Futures price rises; short earns a loss.
• C) Future price falls; long earns a loss.
• D) Futures price rises; long earns a profit.

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in price, leading consumers to substitute one product for another.

Real Balance Effect

An economic theory suggesting that inflation or deflation changes individuals' purchasing power, affecting their real income and consumption patterns.

Marginal Utility

The additional satisfaction or utility gained by consuming one more unit of a good or service.

Total Utility

The total satisfaction received from consuming a given total quantity of a good or service.