Who Will Lose If the Price of an Underlying Asset

question 57

Multiple Choice

Who will lose if the price of an underlying asset falls?

• A) the seller of a futures contract
• B) the buyer of a put
• C) the writer of a call
• D) the buyer of a futures contract
• E) both b and c

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Definitions:

Interest Rate Cap

A financial derivative contract that limits the maximum interest rate a borrower has to pay on a variable-rate loan.

Futures Contracts

Standardized agreements to buy or sell a commodity or financial asset at a future date and price.

Hedge

An investment strategy used to reduce risk by taking positions that offset potential losses in other investments.

Strike Price

The strike price is the price at which the holder of an option contract has the right to buy (for a call option) or sell (for a put option) the underlying asset or security upon exercise of the option.