Standardization of Derivative Contracts

question 3

Multiple Choice

Standardization of derivative contracts:

• A) results in increased risk for the parties involved.
• B) makes them more difficult to understand and therefore leads to increased misuse.
• C) makes the premiums involved with these contracts increase.
• D) leads to greater liquidity and lower risk.

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Definitions:

M2

A measure of the money supply that includes all elements of M1 (such as cash and checking deposits) plus "near money" like savings deposits, money market securities, and other time deposits, which are less liquid and not as easily converted to physical cash.

Depositors

Individuals or entities that place their money in a bank for safekeeping and earn interest over time.

M1 Money Supply

A measure of the money supply that includes all physical money such as coins and currency, as well as demand deposits and other liquid assets held by the public.

Checkable Deposits

Bank account balances that can be accessed using checks, debit cards, or electronic transfer, for the purpose of making payments.