Two Below Zero Is a New Ski Resort in Colorado

question 12

Multiple Choice

Two Below Zero is a new ski resort in Colorado.Two Below Zero is concerned that an abnormally warm winter will prevent the accumulation of snow needed to have a profitable ski season.Two Below Zero purchased a contract that will pay Two Below Zero a lump sum payment if the daily high temperature exceeds 30 degrees for more than 12 days between January 1st and March 31st.The contract Two Below Zero purchased is called a(n)

• A)catastrophe bond.
• B)weather derivative.
• C)interest rate swap.
• D)convertible bond.

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Definitions:

Long Position

An investment strategy where an investor buys securities with the expectation that they will increase in value.

Commodity Futures

Financial contracts obligating the buyer to purchase an asset, or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price.

Price

The amount of money or its equivalent paid or charged for something, often determined by supply and demand.

Standardization

The process of establishing common standards or norms to ensure that products, services, or processes are consistent and compatible.