Derivatives Markets- FM

How are you today?

Our topic today is about Derivatives Markets.

What is a derivative in financial markets?

• An investment in stocks

• A financial contract whose value is derived from an underlying asset

• A government bond

• A real estate investment

All derivatives contracts specify the 4 following key terms:

(1) Underlying

(2) Size and price

(3) Expiration date

(4) Settlement

What is the primary purpose of using derivatives in finance?

• • To eliminate all financial risk

  
  

• • To speculate on future market movements

  
  

• To transfer and manage risk

• To guarantee a fixed return on investment

Which of the following is NOT a type of derivative contract?

• Option

• Swap

• Future and Forward

• Bond

What is the main characteristic of a futures contract?

• Customizable terms

• Traded over-the-counter

• Standardized terms and traded on exchanges

• Settled in physical commodities

What is a futures contract used for in derivatives markets?

• Betting on stock prices

• Transferring ownership of stocks

• Hedging against price fluctuations

• Issuing new shares of a company

What is the main difference between options and futures contracts?

• Options involve an obligation, while futures do not

• Futures involve an obligation, while options do not

• Options are always exchange-traded, while futures are not

• Futures are always exchange-traded, while options are not

In a forward contract, how is the price determined?

• ) By the market forces of supply and demand

• Through negotiation between the parties

• Based on the closing price of the previous day

• By the government regulatory authority

What is the primary function of a swap in the derivatives market?

• Speculating on future stock prices

• Exchanging cash flows or other financial instruments

• Transferring ownership of a security

• Guaranteeing a fixed interest rate