Question

Select one of the following statements and give your interpretation of what is meant. Do you think the statement is accurate? What conditions would make it more or less true?

a. “The existence of financial futures contracts allows our firm to hedge against temporary market declines without liquidating our portfolios.”

b. “Given my confidence in the market, I plan to use stock index futures to increase my exposure to market movements.”

c. “We used currency futures to hedge the exchange rate exposure of our international mutual fund focused on German stocks.”

d. “Our firm took a hit because we wrote put options just before the stock market crash.”

e. “Before hedging our stock portfolio with options on index futures, we search for the index that is most appropriate.”

f. “We prefer to use covered call writing to hedge our stock portfolios.”

g. “The swaps market is another Wall Street-developed house of cards.”

h. “As a dealer in interest rate swaps, our bank takes various steps to limit our exposure.”

i. “The regulation of commercial banks, securities firms, and other financial institutions that participate in the swaps market could create a regulatory war.”