Identify the False Statement Related to Break Forward Contracts

question 21

Multiple Choice

Identify the false statement related to break forward contracts.

• A)It is a combination of spot and derivative positions that replicates an ordinary call option.
• B)The initial positions are structured so that the overall position costs nothing up front.
• C)Penalizes the investor if the option ends up out-of-the-money.
• D)Break denotes the ability of the purchaser to void the contract.
• E)All of the above statements are true related to break forward contracts.

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Definitions:

Break-even Analysis

A financial calculation that determines when a project, product, or business will be able to cover its costs and start generating profit.

Utility

In economics and business, the total satisfaction or benefit derived from consuming a good or service.

Bottom Line

The final line in the accounts of a company or organization, showing the net profit or loss after all expenses have been accounted for.

Effect Size

A quantitative measure of the magnitude of a phenomenon, used in statistics to assess the strength of a relationship or impact of an intervention.