DERIVATIVES QUIZ2

The cash market is called “cash” because

• Trades are settled in cash settlement and not physical settlement

• Products traded are plain vanilla and liquid as cash

• Most of the trades are based on cash and carry strategy

The difference between money markets and bond markets

• Money market is a market where we trade money while we trade bonds in bond markets

• Money market is the market where trades are settle in money while bonds market is a market where trades are settled through bonds delivery

• Money market is a short term market while bond market is a long term market

What is the difference between OTC and exchange traded market

• OTC is a non regulated, liquid transparent market while exchange traded market is the opposite

• OTC market is a customized, low liquid and less transparent market while the exchange traded market is the opposite

• OTC market is an illiquid, cleared market while the exchange traded market is the opposite

If you buy a put option what is your view on the underlying stock

• The price of the stock will increase

• The price of the stock will decrease

• The price of the stock will be less volatile

If you want to hedge a position, what is the cheapest instrument

• Futures

• Forward

• Options

If you are trading for clients solely on a commission based you are a

• Broker

• Broker Dealer

• Interdealer broker

‘Buying a put option on a stock when the stock is owned ’’ is as if you

• Sell a call

• Have a form of insurance

• Bet on price decrease of the stock price

We need clean prices because

• They give the trader the right trading price

• They make the market movements analysis easier

• They are more accurate than dirty prices

The difference between futures and forwards is

• Forwards are more liquid

• Forwards are cheaper than futures

• Forwards could be non-standard contracts

The clearing house is important for futures markets because

• It decreases counterparty risk

• It allows a better regulatory supervision

• It helps customize the settlement of trades