One Distinguishing Difference Between the Buyer of a Futures Contract

question 29

Multiple Choice

One distinguishing difference between the buyer of a futures contract and the buyer of an option contract is that the futures buyer:

• A)Pays a much higher premium than option buyers
• B)Has an obligation to purchase, not a choice
• C)Can lose no more than the initial premium
• D)Has increased rather than reduced risk

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Definitions:

Short-term Note Payable

A short-term note payable refers to a debt obligation that is due for repayment within a year or less.

Contingent Liability

A potential obligation that may arise depending on the outcome of a future event, not recognized on the balance sheet unless occurrence is probable and the amount can be reasonably estimated.

Estimated Liability

A potential financial obligation that may arise in the future, recognized in accounting based on probable expenditures.

Times Interest Earned

A financial ratio that measures a company's ability to meet its debt obligations by comparing its income before interest and taxes (EBIT) to its interest expenses.