Question

12. Which of the following statements about derivatives is true A) American type options can be exercised only at a specific date B) Short position in gold futures turns out to be profitable if the gold price goes down C) Forward contracts are traded in derivatives exchange D) None of the above is true

Answer 1

Right answer is :-

B) short position in gold futures turns out to be profitable when gold prices go down

Explanation :-

B ) is the right answer because short position in gold future means making contract of selling gold at higher prices and when gold price decreases, you can buy gold at lower prices and gain a profit from the situation. This is bearish thinking.

Option ( A) is false because American type option can be exercised anytime before the expiration date . So, there is no specific date for its exercise .

Option (C) is false because forward contracts are not traded in any exchange as these are not standardized . Forward contract are traded over the counter (otc)