Derivatives Quiz

Which of the following is an example of a derivative? 

•  A share of Apple stock

  
  

• A U.S. Treasury bond 

  
  

• A futures contract for oil 

  
  

•  A savings account at a bank

  
  

Which of the following is not a characteristic of forward contracts?

• Customised terms 

  
  

• Traded over-the-counter 

  
  

• Standardized contract size 

  
  

• Higher counterparty risk than futures

  
  

The difference between the spot price and the futures price is known as:

•  Arbitrage

•  Premium

• Basis

• Spread

  
  

What is the maximum loss for the buyer of a call option?

•  Unlimited

  
  

•  The strike price

  
  

• The premium paid  

• The difference between the strike price and the market price

  
  

What is the primary purpose of the margin requirement in futures trading?

•  To increase trading volume

  
  

•  To reduce counterparty risk

  
  

•  To limit the number of contracts a trader can hold 

  
  

• To ensure physical delivery of the underlying asset

  
  

Which of the following best describes the relationship between option premium, intrinsic value, and time value? 

•  Premium = Intrinsic value - Time value

  
  

•  Premium = Intrinsic value + Time value

  
  

• Premium = Time value - Intrinsic value

  
  

• Premium = Intrinsic value × Time value

  
  

You sold one XYZ Stock Futures contract at Rs. 278 and the lot size is 1,200. What is your profit (+) or loss (-), if you purchase the contract back at Rs. 265?

• 16,600 

  
  

• 15,600 

  
  

• -15,600 

  
  

• -16,600

  
  

You have taken a short position of one contract in June XYZ futures (contract multiplier 50) at a price of Rs. 3,400. When you closed this position after a few days, you realized that you made a profit of Rs. 10,000. Which of the following closing actions would have enabled you to generate this profit? (You may ignore brokerage costs.)

•  

  Selling 1 June XYZ futures contract at 3600

  
  

• Buying 1 June XYZ futures contract at 3600

   

  
  

• Buying 1 June XYZ futures contract at 3200

• Selling 1 June XYZ futures contract at 3200 

  
  

The buyer of an option cannot lose more than the option premium paid. 

• True only for European options 

  
  

• True only for American options 

  
  

• True for all options 

  
  

• False for all options

  
  

If you think the price of a stock will go up, which option might you buy? 

•  A put option 

  
  

•  A call option 

  
  

• A forward contract

  
  

• A futures contract