Question

:
Since the 1930's commercial banks have NOT been permitted to do any type of securities underwriting.
True
False

:
With regards to a futures contract, the SHORT position will make money when the underlying item's price RISES.
True
False

:
If interest rates rise, the value of Master Limited Partnership (MLP) units will rise.
True
False

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Basis risk is the risk to an investor arising from the uncertainty about the basis at a given future date. It is the most important type of risk a speculator/hedger faces in dealing with commodity prices.
True
False

:
In a " Best Effort" underwriting, the investment bank purchases the securities from the issuing company (thereby guaranteeing a specific price to the issuer) and then seeks its "best effort" to sell the securities to institutional investors.
True
False

:
The objective of active portfolio management is to earn a portfolio return which matches the return of a predetermined passive benchmark portfolio (net transaction costs) on a risk-adjusted basis.
True
False

:
With regards to a futures contract, open interest refers to the number of futures contracts outstanding which have been established but have not been offset by a reverse trade or exercised (i.e., at maturity date). Long and short positions are not counted separately (i.e., open interest can be defined in terms of either the number of long or short contracts, as for every long contract there will be a corresponding short position).
True
False

Answer 1

Answer(1): True.

Since 1930, Commercial banks have not been permitted to underwrite the securities because of their safety, there may be a conflict of interest if they do so, however investment banks do so.

Answer(2): False.

No, Short position will make money when underlying price will go down. Short position is the bearish position, when trader thinks that particular stock would come down for some reason, he would enter into a short position and if his prediction proves correct then he will get profit. Short positions become frofitable when price of underlying comes down.

Answer(3): False

Master limited partnership (MLP) is also called Public limited partnership. They issue units instead of shares. It avails the tax benefits of limited partnership. MLPs trade on national exchanges.

Higher interest rates are not good for MLP. MLPs keep higher amount of debt so when the interest rates rise, cost of debt also rises, their funding cost will increase so higher interest rates are not favorable for MLP.

Answer(4): True.

Basis- Basis is the difference between the spot price and future price.

Basis risk- It is the risk related to hedging. In the hedging strategy if offsetting investment does not experience price changes, basis risk arises. It arises when hedge is imperfect. It arises more in commodity prices.

Answer(7): True.

Open Interest (of futures) means the number of futures contracts are outstanding as of date. It does not count the long and short positions separately as we know that each long position has a corresponding short position and vice versa. Open position is the total number of open positions that are yet to settle/set off/clear.