| Which of the following Stock market terms are correctly defined? |
| 1. Hedge is a strategy used to reduce the risk of adverse price movements in a security, by making a transaction that offsets an existing position in a related security. |
| 2. Open Order is an order to buy or sell securities that remains in the system for more than one day. |
| 3. Price-Earnings (P/E) Ratio is the valuation ratio of a company's current share price compared to its per-share earnings. |
| 4. Strike Price is the price at which a specific derivative contract can be exercised. |
A) Only 1 and 4
B) Only 3 and 4
C) Only 2 and 3
D) All of these
Correct Answer: A
Solution :
[a] [d] Open Order remains in effect until it is canceled by the customer or until it is executed or until it expires. Price-Earnings (P/E) Ratio is calculated as a particular security's last closing market price per share divided by the latest reported 12-month earnings per share (EPS). Strike Price is commonly used in option trading. The purchases and sales are known as calls and puts. In calls the strike price is the price that a security can be bought with in expiration date. In puts the strike price is the price that a security can be sold within expiration date.
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