Which of the Following Is/are Not True

question 47

Multiple Choice

Which of the following is/are not true?

• A)A derivative is a financial instrument whose value changes in response to changes in an underlying observable variable, such as a stock price, an interest rate, a currency exchange rate, or a commodity price.
• B)Unlike equity securities, which have no definite settlement date, firms settle a derivative at a date that the terms of the instrument specify.
• C)A derivative requires an investment that is small, relative to the investment in a contract that is similarly exposed to changes in market factors, or requires no investment at all.
• D)Firms use derivative instruments to hedge the risks that arise from changes in interest rates, foreign exchange rates, and commodity prices.
• E)The general idea behind hedging is that changes in the fair value of the derivative instrument map the changes in the fair value of an asset or liability or changes in future cash flows, thereby multiplying the effects of those changes.

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overheads incurred to convert raw materials into finished goods.

Predetermined Overhead Allocation Rate

A calculated rate used to apply manufacturing overhead costs to specific jobs or production units based on estimated costs and activities.

Direct Labor Cost

The expense incurred by companies for wages, benefits, and other costs directly associated with the employment of workers who physically produce a product or service.

Equivalent Finished Units

A calculation in cost accounting that converts partially completed goods into a number of complete units for inventory costing purposes.