Which of the Following Statements Regarding Futures Contracts Is False

question 35

Multiple Choice

Which of the following statements regarding futures contracts is false?

• A) Both the buyer and the seller can get out of the contract at any time by selling it to a third party at the current market price.
• B) Futures prices are not prices that are paid today. Rather, they are prices agreed to today, to be paid in the future.
• C) Futures contracts are traded anonymously on an exchange at a publicly observed market price and are generally very illiquid.
• D) Traders are required to post collateral, called margin, when buying or selling commodities using futures contracts.

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Definitions:

Working Capital

The difference between current assets and current liabilities, indicating the liquidity available to fund day-to-day operations.

Income Tax Rate

The percentage of income that is paid to the government as tax.

After-Tax Discount Rate

This is the discount rate that has been adjusted for taxes, used to evaluate the net present value of an investment after taking into account the tax implications.

Straight-Line Depreciation

A method of calculating the depreciation of an asset which assumes the asset loses an equal amount of value each year over its useful life.